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HEARINGS  AND  ARGUMENTS 


BKFORK    THK 


COMMITTEE  ON  BANKING  AND  CURRENCY 

OF  THE  HOUSE  OF  REPRESENTATIVES 


ON 


PROPOSED  CURRENCY 
LEGISLATION 


SIXTIETH  CONGRESS 


1907-8 


WASHINGTON 
GOVERNMENT  PRINTING  OFFICE 

1908 


\ 


COMMITTEE  ON  BANKING  AND  CURRENCY. 

SIXTIETH  CONGRESS. 


CHARLES  N.  FOWLER,  N.  J.,  Chairman. 


GEORGE  W.  PRINCE,  ILL. 
LLEWELLYN  POWERS,  ME. 
HENRY  -McMORRAN,  MICH. 
CAPELL  L.  WEEMS,  OHIO. 

GEORGE  D.  Mccreary,  pa. 

GEORGE  E.  WALDO,  N.  Y. 
everts  a.  HAYES,  CAL. 
JOHN  W.  WEEKS,  MASS. 
THEODORE  E.  BURTON,  OHIO. 


JAMES  McKINNEY,  ILL. 
CYRUS  DUREY,  N.  Y. 
ELIJAH  B.  LEWIS,  GA. 
ARSi:NE  P.  PUJO,  LA. 
CARTER  GLASS,  VA. 
OSCAR  W.  GILLESPIE,  TEX. 
OLLIE  M.  JAMES,  KY. 
WILLIAM  T.  CRAWFORD,  N.  C. 
JOHN  G.  McHENRY,  PA. 


CHAS.  S.  GREENWOOD,  aeik. 


CONTENTS 


12.  Page. 

J^ Statement  of  the  Hon.  George  F.  Burgess,  a  Representative  from  Texas 5 

Statement  of  the  Hon.  E.  L.  Fulton,  a  Representative  from  Oklahoma 23 

^Statement  of  Mr.  A.  N.  Jordan,  of  New  York  City 30 

••^Statement  of  Mr.  Frank  Miller,  of  San  Francisco,  Cal 54 

(Sfstatement  of  Mr.  T.  C.  Daniel,  of  Virginia 55 

!IjStatement  of  Mr.  Samuel  Gompers,  President  American  Federation  of  Labor, 

Washington,  D.  C 72 

.  Statement  of  Mr.  W.  V.  Cox  (American  Bankers'  Association),  of  Washington, 

:^'    D.C - 81,131 

'OjStatement   of  Mr.  John   L.  Hamilton   (American  Bankers'  Association),  of 

"^    Hoopeston,  111 86 

Statement  of  Mr.  J.  Howard  Cowperthwait,  154  West  Eighty-sixth  street,  New 

2      York  City 134 

o  Statement  of  the  Hon.  William  C.  Lovering,  a  Representative  from  Massa- 

^      chusetts 150 

Statement  of  Mr.  Edmund  D.  Fisher,  secretary  of  the  Flatbush  Trust  Com- 
pany, of  New  York 158 

Statement  of  Mr.  Moreton  Frewen,  of  England 171 

!  Statement  of  the  Hon.  Lyman  J.  Gage,   ex-Secretary  of  the  United  States 

()i      Treasury 184 

,   Statement  of  Mr.  Charles  A.  Conant,  of  New  York  City 205 

Statement  of  Mr.  Joseph  French  Johnson,  dean  of  the  New  York  University, 

School  of  Commerce 226 

Statement  of  Mr.  Andrew  J.  Frame,  Waukesha,  Wis 235 

3 


389380 


Committee  on  Banking  and  Currency. 

House  of  Representatives, 

Washington^  D.  G,^  Wednesday^  Jamuiry  22, 1908. 
\i  The  committee  met  at  10.30  o'clock  a.  m. 

Present:  Representatives  Fowler  (chairman).  Prince.  Powers,  Mc- 
li^Iorran,  McCreary,  Waldo,  Hayes,  Weeks.  Burton,  McKinney,  Lewis, 
'*iijo.  Glass,  Gillespie,  James,  Crawford,  and  McHenry. 

Present,  also,  Hon.  George  F.  Burgess,  Representative  from  Texas, 
[,nd  Hon.  E.  L.  Fulton,  Representative  from  Oklahoma. 

(The  committee  thereupon  proceeded  to  the  consideration  of  the 
Various  bills  pending  before  it  dealing  with  financial  questions.) 

|STATEMENT   OF  HON.   GEORGE   F.   BURGESS,   REPRESENTATIVE 

I  FROM  TEXAS. 

;> 

\      Mr.  Burgess.  Mr.  Chairman,  I  have  pending  before  this  committee 
^i  a  banking  and  currency  commission  bill,  H.  R.  9180,  to  provide  for  the 
-^  creation  of  a  banking  and  currency  commission,  directing  its  inves- 
^  tigation,  and  report  to  the  next  session  of  this  Congress,  and  for  other 
purposes,  and  I  wish  to  address  myself  briefly  and  strictly  to  it. 
The  Chairman.  What  bill  is  it? 
-      Mr.  Burgess.  It  is  a  bill  to  create  a  banking  and  currency  commis- 
I  sion,  which  shall  report  to  Congress  not  later  than  December  1  of  this 
year. 

The  Chairman.  What  is  the  number  of  the  bill,  Mr.  Burgess  ? 
^      Mr.  Burgess.  I  can  not  carry  those  numbers  in  my  head  to  save  my 
]'  life.    I  will  state  the  substance  of  it,  so  that  it  will  not  be  necessary 
for  you  gentlemen  to  read  it. 

It  provides,  in  brief,  that  the  President  shall  appoint  a  banking 
and  currency  commission  of  nine  members — two  from  the  Eastern 
States,  two  from  the  Middle  Western  States,  two  from  the  Southern 
States,  two  from  the  rest  of  the  country,  and  c>ne  from  the  Republic 
at  large.  It  defines  briefly  the  duties  of  the  commission,  one  of  which 
is  to  have  public  hearings  of  not  less  than  three  days  each  at  the  cities 
of  New  York,  Chicago,  St.  Louis,  Denver.  Fort  Worth,  New  Orleans, 
and  Atlanta.  It  provides  that  a  stenographic  report  of  those  hear- 
ings, and  such  others  as  they  may  see  fit  to  have,  under  regulations 
and  rules  to  be  prescribed  by  the  commission,  shall  be  filed  with  the 
Clerk  of  the  House  not  later  than  December  1.  1908;  and  also  that  not 
later  than  that  date  the  commission  shall  file  a  report  and  recommen- 
dation to  Congress  as  to  the  best  banking  and  currency  system  they 
are  able  to  devise  as  the  result  of  these  hearings  and  the  study  of  the 
question. 

My  reasons  for  that  procedure  I  wish  briefly  to  give.  I  have  heard 
but  two  objections  to  that  method  of  procedure.    One  is  that  it  is  a 


6  CUERENCY  LEGISLATION. 

confession  of  our  ignorance  and  incompetency  to  deal  with  the  ques- 
tion. I  do  not  care  to  discuss  that  at  length.  I  dismiss  it  with  the 
brief  remark  that  so  far  as  I  am  able  to  discover  nobody  can  be  hurt 
by  a  confession  of  the  truth.  If  there  is  any  great  subject  pending 
in  this  country  about  which  ignorance  is  dense  and  universal,  even 
among  those  who  are  directly  dealing  with  it,  it  is  banking  and  cur- 
rency. The  reason  for  it  is  rather  obvious.  In  the  first  place,  we 
have  never  had  any  general  discussion  of  the  subject  all  over  the 
country.  We  have  never  had  that;  and  I  hope — and  that  is  one  of 
the  objects  of  my  bill — that  it  can  be  kept  out  of  partisan  politics. 
Fortunately,  it  has  not  yet  gotten  into  partisan  politics.  It  is  purely 
a  great  business  question.  I  find,  in  talking  with  bankers  who  have 
been  pursuing  the  business  under  existing  law  for  all  the  way  from 
ten  to  twenty-five  years,  that  all  they  know  about  banking  and  cur- 
rency is  such  knowledge  of  the  laws  that  exist  as  it  is  absolutely 
essential  for  them  to  have  in  order  to  run  the  business.  The  rest 
of  their  time  they  have  given  to  the  practical  details  of  banking,  in 
an  effort  to  make  money  under  this  system,  without  any  study  of  the 
system  or  its  defects  or  advantages. 

I  have  yet  to  find  one  of  those  bankers  who  knows  anything  of 
the  banking  and  currency  systems  of  Germany,  France,  England,  or 
any  of  the  great  progressive  countries  that,  in  my  judgment,  are  out 
of  sight  ahead  of  us  on  this  question.  I  have  yet  to  find  a  Member  of 
Congress  who  pretends  to  understand  the  banking  and  currency  sys- 
tem of  any  country,  his  own  or  any  other.  I  do  not  believe  there  are 
five  men  in  the  House  that  agree  about  any  sort  of  a  banking  and  cur- 
rency system.  It  would  seem  perfectly  clear  that  with  this  dense 
and  universal  ignorance  among  the  people  pursuing  the  business,  and 
among  Senators  and  Members  of  Congress  themselves,  and  with  a 
thousand  diverse  views  about  it,  a  present  system  that  is  nothing  but 
a  piece  of  mingled  ignorance,  demagogy,  and  temporization,  we  wdll 
not  be  able  to  pass  any  sort  of  banking  and  currency  measure  of 
which  any  of  us  could  possibly  be  proud  in  the  coming  years;  and, 
in  my  judgment,  it  is  certain  that  if  we  attempt  it  at  this  session 
the  whole  subject  will  be  drawn  into  the  vortex  of  partisan  politics 
at  the  most  unfortunate  stage  in  the  political  history  of  this  country 
for  the  last  twelve  years. 

We  all  understand  how  the  parties  are  all  divided  now  about  every- 
thing under  the  sun,  from  police  courts  to  States'  rights,  from  the 
control  of  railroads  to  the  control  of  quarantine,  and  all  along  the 
line.  We  are  all  divided ;  the  whole  thing  is  hopelessly  mixed  up,  and 
nobody  can  tell  what  is  going  to  happen  in  the  next  Presidential 
election  in  either  party. 

If  you  drag  financial  legislation  or  the  banking  and  currency  sys- 
tem into  the  coming  Congressional,  Senatorial,  and  Presidential  con- 
tests, nobody  can  tell  what  will  happen.  It  is  absolutely  certain,  in 
my  judgment,  that  it  will  only  hurt  the  question  and  obscure  it  and 
get  partisan  prejudice  and  sectional  feeling  all  mixed  up  with  a 
great  business  question  and  render  its  ultimate  solution  infinitely 
more  difficult. 

If  this  bill  (hat  I  propose  could  be  adopted,  it  would  at  once  lift  the 
whole  subject  out  of  the  domain  of  partisan  politics,  and  every  sensi- 
ble man  in  every  party  could  say,  "  Now,  let  us  study  this  question ; 
we  will  run  our  Presidential  and  Congressional  campaigns  outside  of 


CUERENCY   LEGISLATION.  7 

it,  and  we  will  study  this  question,  and  we  will  see  what  can  be  done 
in  the  interest  of  the  whole  country,  without  reference  to  party  and 
without  reference  to  section;"  and  that  is  exactly  what  ought  to  be 
done. 

I  am  not  afraid,  and  I  do  not  see  any  use  in  any  of  us  being  afraid, 
to  tell  the  truth  about  our  own  ignorance  and  incapacity  on  this  sub- 
ject. I  am  frank  to  admit  it  myself  and  I  am  ready  to  admit  it  for 
almost  every  colleague  of  mine  with  whom  I  have  talked.    [Laughter.] 

The  Chairman.  Confession  is  good  for  the  soul. 

Mr.  Burgess.  Yes,  sir;  and  good  for  the  country,  too.  I  think 
perhaps  our  constituents  would  have  more  faith  in  us  if  we  did  not 
claim  to  know  everything  about  everything  all  the  time.  [Laughter.] 
If  we  admitted  to  them  once  in  a  while  that  we  were  not  as  smart  as 
they  thought  we  ought  to  be,  I  think  perhaps  it  would  be  beneficial  to 
all  of  us.     [Laughter.] 

Another  thing :  We  are  here,  if  we  attempt  to  legislate,  as  financial 
doctors.  The  chief  trouble  about  medicine  is  not  because  of  disagree- 
ment as  to  different  remedies — not  at  all.  Great  physicians  agree 
about  remedial  courses  in  the  main.  The  disagreement  arises  about 
the  diagnosis,  about  what  is  the  matter  with  the  fellow.  Now,  if 
anybody  has  found  anybody  that  has  offered  anything  like  even  a 
partially  reasonable  diagnosis  of  the  causes  which  have  produced  the 
present  situation,  I  would  like  to  have  his  picture. 

One  gentleman,  eminent  in  Republican  politics,  masterly  in  ability, 
and  dauntless  in  fight,  who  challenges  my  admiration,  although  I 
can  agree  to  hardly  anything  that  he  has  said  so  far  that  I  have  read 
[Senator  Foraker],  says  that  this  whole  thing  is  just  "  Bryan,  Roose- 
velt, and  raid  on  the  railroads."  Well,  I  think  there  is  something  in 
that — just  a  little.  It  is  unquestionably  true  that  to  attempt  to  regu- 
late billions  of  dollars'  worth  of  property  by  affecting  the  income, 
which  would  affect  the  bonds,  would  necessarily  have  a  tendency  to 
depress  the  value  of  those  securities,  and  especially  those  that  had 
been  speculatively  boosted ;  although  I  have  but  little  concern,  and  I 
presume  very  few  honest  men  have  much  concern,  about  that  feature. 
But  that  is  only  one  small  thing. 

Another  man  says :  "Wall  street  speculation  is  the  only  cause  for  all 
this  trouble.  The  gamblers  tied  up  all  the  banks,  and  "  (if  you  will 
excuse  an  emphatic  Texas  expression)  "  they  raised  all  the  hell." 
Well,  I  think  there  is  something  in  that — just  how  much  I  do  not 
know,  and  I  do  not  think  anybody  else  knows.  But  certainly  that  can 
not  have  been  even  the  chief  cause,  let  alone  the  whole  cause  of  this 
trouble. 

Another  man  comes  along  and  says :  "All  of  our  reserves  are  tied 
up  in  the  money  centers,  and  those  fellows  have  shrewdly  taken  ad- 
vantage of  the  situation ;  the  men  who  owned  a  lot  of  ready  deposits 
in  gold  have  taken  them  out  and  put  them  in  their  safe-deposit  boxes, 
not  for  fear  of  losing  their  deposits,  but  in  order  to  help  scare  the 
country  and  play  bears,  and  then  use  their  money  for  their  own  ad- 
vantage afterwards."  I  think  there  is  a  good  deal  in  that;  just  how 
much  I  do  not  know. 

Another  one  says :  "  It  was  a  strife  among  the  bears  and  bulls  over 
stocks  and  bonds  generally — not  so  much  speculatively,  but  competi- 
tively with  the  different  systems — Harriman  against  somebody,  and 


8  CURRENCY   LEGISLATIO^r. 

somebody  against  Harriman."     I  think  there  is  something  in  that; 
just  how  much  I  do  not  know — nobody  else  knows. 

Another  one  says :  "  We  have  been  living  too  high.  We  have  been 
spending  too  much  money.  We  have  gotten  extravagant.  We  are 
buying  too  much  from  everybody  and  paying  too  much  for  every- 
thing." I  think  there  is  a  good  deal  in  that,  too — a  good  deal  in 
that.    Just  how  much  I  do  not  know. 

Another  one  says :  "  We  have  been  investing  too  rapidly.  We  have 
gone  beyond  a  reasonable  credit  basis,  based  upon  our  actual  cash  and 
property  situation."  I  think  there  is  a  good  deal  in  that — a  good 
deal  in  that.    How  much  I  do  not  know. 

If  I  were  to  be  asked  to  diagnose  and  size  up  the  whole  situation 
as  I  see  it — and  I  admit  that  this  is  only  a  general  guess  at  it — I 
should  say  that  the  country  for  ten  years  has  been  going  through  a 
protracted  prosperity  spree,  and  the  sobering-up  process  was  inevita- 
ble. You  can  not  cure  the  condition  by  any  sort  of  legislation  you  may 
pass.  The  man  is  a  demagogue  who  says  you  can.  That  is  my  honest 
opinion.  You  can  not  cure  this  situation  by  any  kind  of  a  salve  that 
can  be  fixed  up  here  by  legislative  doctors  and  spread  over  the  sores 
that  exist.  That  is  my  notion  about  it.  I  think  we  have  got  to  go 
through  a  sobering-up,  shake-out  process.  In  a  general  way,  my 
idea  is  that  there  is  something  in  all  these  things  as  correlated  and 
acting  in  accord  under  a  general  condition  which,  in  a  way,  is  re- 
sponsible for  the  whole  trouble. 

All  of  us  recognize  that  for  the  last  twelve  years  two  things  have 
been  constantly  going  on,  tending  tremendously  to  affect  values  and 
incite  investment  and  extend  credit  unduly,  namely,  we  have  had  an 
increasing  volume  of  exports  over  imports  going  on  steadily  for 
about  twelve  j^ears,  so  that  in  that  period  the  balance  of  trade  in  our 
favor  has,  in  round  numbers,  been  about  $4,000,000,000.  Cooperating 
with  that,  we  have  been  steadily  pouring  into  our  money  volume 
hundreds  of  millions  of  dollars  of  increased  circulation  of  gold,  gold 
certificates,  national-bank  notes,  even  of  silver  coinage,  of  every 
form  of  money,  and  all  of  it  good.  There  has  been  no  question  dur- 
ing this  time,  or  any  period  of  this  time,  as  to  whether  one  dollar 
would  be  as  good  as  any  other  dollar,  and  whether  it  would  be  a  silver 
or  a  gold  price,  or  a  rag-money  price,  or  anything  else.  Naturally, 
that  could  have  but  one  effect — to  cause  a  general  rise  in  prices 
everywhere ;  and  it  was  the  bull  era.  Everybody  figured  in  this 
wa}' :  "  If  I  can  buy  anything  now  at  a  fair  value,  it  is  a  cinch  that 
I  am  going  to  make  money,  because  the  price  is  going  up  all  th^ 
.  time.  I  don't  care  whether  it  is  land,  or  cattle,  or  goats,  or  what- 
ever else  it  is,  if  I  can  buy  it  now  I  can  make  money,  and  I  do  not 
need  much  money  either."  Confidence  was  so  broad  and  widespread, 
so  artistically  boosted  by  my  Republican  friends,  that  the  whole 
country  was  about  to  believe  that  nothing  unfortunate  could  happen 
if  we  had  a  Republican  Administration ;  it  would  just  be  impos- 
sible to  have  any  trouble.  [Laughter.]  And  the  most  of  the  people 
foolish]}* believed  in  that.  I  believe  some  of  the  people  who  have 
been  taught  to  believe  it  themselves  got  caught  in  this  swirl.  I  have 
no  doubt  of  it.  The  whole  country  was  boosted.  Everybody  got 
to  believing  that  a  panic  could  not  occur;  that  everybody  was  going 
to  get  rich,  and  if  a  fellow  did  not  get  rich  there  was  nobody  to 
blame  but  himself;  he  was  just  "no  account;"  and  they  went  to 


CURRENCY   LEGISLATION.  9 

buying  everything,  and  inflated  credit  beyond  all  conceivable  limits — 
inflated  all  values  beyond  all  just  relations.  Value  is  a  mere  crea- 
ture of  relation,  as  everybody  knows  who  knows  an3'thing  worth 
knowing  about  the  money  question  or  the  banking  and  currency 
question.  The  whole  thing  resolves  itself  into  a  question  of  rela- 
tion ;  and  whenever  j^ou  distend  the  relation  of  credits  and  values  to 
the  actual,  practical  working  basis  of  all  the  property  and  all  the 
business  of  the  country  you  may  look  for  a  panic,  because  nothing 
else  can  happen.  There  must  be  a  readjustment.  It  is  just  like 
the  inexorable  working  of  the  law  of  the  tides  or  any  of  the  great 
natural  forces. 

In  my  judgment  that  is  exactly  what  happened.  Now,  gentlemen 
may  think,  if  they  do  not  say,  "  If  that  theory  is  true,  we  do  not  need 
any  legislation  at  all ;  and  what  is  the  use  of  this  banking  and  cur- 
rency commision?"  I  have  not  quite  gotten  to  that  position,  but  I 
am  very  much  nearer  to  it  than  some  people  are.  I  do  not  believe 
that  the  wisdom  of  a  Solomon,  under  our  conditions — growing,  de- 
veloping along  all  lines  of  progress  as  no  other  country  has  grown  or 
perhaps  ever  will  in  the  history  of  the  world — can  devise  a  banking 
and  currency  system,  or  a  coinage  system,  or  both  combined,  that  will 
absolutely  prohibit  in  this  country  the  recurrence  of  panics  of  greater 
or  less  force,  dependent  upon  conditions.  I  think  the  best  that  can  be 
done  is  to  de\ise  a  banking  system  that  will  prevent  panics  to  the 
greatest  extent  that  it  is  possible  for  legislation  to  prevent  these 
things.  In  other  words,  I  believe  that  an  adequate  banking  and  cur- 
rency system  can  not  prevent  recurrent  periods  of  inflation  and  de- 
pression, can  not  prevent  a  readjustment  now  and  then  of  distended 
and  extended  credits  and  values,  but  that  it  can  lessen  largely  the 
force  of  the  shock  when  it  comes.  I  believe  that  is  the  best  that  we 
can  hope  to  accomplish.  And  the  only  reason,  in  my  judgment,  for 
entering  into  this  matter  is  not  with  the  hope  of  now  curing  any- 
thing, not  with  the  hope  of  immediately  restoring  confidence,  for,  in 
my  judgment,  you  can  no  more  legislate  confidence  into  people  than 
you  can  righteousness  or  sobriety  or  honesty  or  virtue.  It  is  some- 
thing that  grows  out  of  relations  and  conditions,  and  that  people 
exercise  for  themselves,  in  spite  of  your  legislation. 

But  you  could  provide  a  system,  in  my  judgment  (if  you  could  do 
it  by  a  method  that  would  reach  a  common  result)  that  would  be 
generally  accepted  in  the  countrj^,  which  is  the  important  thing;  be- 
cause confidence  Avill  work  then  as  it  does  in  the  case  of  every  other 
great  business  proposition,  which  would  largely  prevent  the  recur- 
rence of  panics.  And  I  am  much  interested  in  that  in  a  nonpartisan 
way,  for  it  is  my  belief  that  just  as  soon  as  we  go  through  this  shake- 
out  process  and  get  on  our  feet,  and  confidence  flows  into  men's  hearts 
again  (as  it  will,  undoubtedly),  we  will  have  another  period  of  per- 
haps ten  or  twelve  years  in  which  the  same  thing  will  go  on  by  leaps 
and  bounds,  perhaps  to  a  greater  extent  than  it  has  in  the  last  ten 
years.  I  see  no  reason  on  earth  why  it  should  not.  People  in  the 
Northwest  have  not  quit  raising  wheat;  people  in  the  South  have  not 
quit  raising  cotton:  cattle  still  grow  all  over  this  country;  the  fac- 
tories are  still  here;  the  people  are  still  here;  industry,  intelligence, 
and  economy  are  still  here,  and  economy  and  industry  are  increasing 
rapidly  under  present  conditions;  and  it  is  certain,  in  my  judgment, 
that  this  so-called  panic  is  going  to  prove  a  blessing  in  disguise  to 


10  CURRENCY   LEGISLATION. 

this  great  countiy.  It  is  bound  to.  We  will  haA'e  a  more  intelligent 
conception  of  conditions;  we  will  have  a  better  conception  of  the 
relation  of  values  and  credits ;  we  will  have  more  intelligent  and  wise 
and  conservative  banking,  which  is  one  of  the  main  things;  and  we 
will  have  the  same  great  forces  to  operate  and  cooperate  to  produce 
another  era  of  rising  prices  and  of  universal  progTess. 

And  who  is  President  or  who  runs  the  politics  of  a  country  will 
not  matter  much.  I  have  never  been  much  of  a  believer  mj^self  in 
teaching  the  people  all  the  time  that  prosperity  and  progress  depend 
on  political  power.  I  have  a  contempt  for  that  sort  of  doctrine.  I 
do  not  care  whether  it  comes  from  a  Republican  or  a  Democrat,  I 
do  not  believe  there  is  much  in  it.  I  think  that  progress  and  growth 
and  evolution  and  power  in  this  country  are  not  going  to  grow  out 
of  politics,  but  are  going  to  grow  out  of  individual  energy  and 
intelligence  cooperating  with  the  great  natural  forces  that  exist  here, 
and  that  will  be  irresistible,  no  matter  who  is  in  power  politically. 

Mr.  Crawford.  In  other  words,  you  believe  it  will  happen  in  spite 
of  politics? 

Mr.  Burgess.  Surely;  just  as  I  believe  this  country  has  prospered 
beyond  an^^body's  expectations,  in  spite  of  the  Eepublican  party. 
[Laughter.]  I  think  they  have  done  what  they  could  to  prevent  it, 
along  many  lines;  but  we  are  going  on  just  the  same,  and  very  likely 
the  Republicans  would  think  the  same  thing  if  we  had  been  on  top 
and  this  had  all  happened.  The  truth  of  it  is,  we  may  as  well  quit, 
all  of  us.  playing  this  demagogue  game  that  one  party  means  adver- 
sity and  another  prosperity.  That  is  all  tommy  rot,  and  all  of  us 
know  it  in  our  hearts.     That  is  the  truth  about  it. 

Just  a  word  more  about  this  important  feature:  My  service  in 
Congress  has  grown  exceedingly  pleasant,  especially  on  the  personal 
side.  I  have  made  many  friendships  here,  without  any  reference 
whatever  to  politics;  for  I  have  a  contempt  for  a  man's  friendship 
that  is  grounded  on  either  religion  or  politics.  There  is  nothing 
sincere  or  valuable  about  it;  and  whenever  a  crisis  comes  it  will  van- 
ish into  thin  air. 

Mr.  James.  It  grows  more  pleasant  at  each  recurring  election. 
[Laughter.] 

Mr.  McKiNNEY.  At  each  increase  of  salary,  too. 

Mr.  Burgess.  Yes.  I  have  formed  many  of  those  friendships 
that  will  last  through  life.  I  came  here  a  pretty  narrow,  intense 
Democrat.  I  rather  had  the  idea  that  a  Republican,  for  instance, 
like  my  good  friend  from  Maine  over  there,  with  whom  I  served  in 
the  first  committee  of  Congress  I  got  on,  really,  if  closely  inspected, 
had  horns  in  his  hair  [laughter]  ;  and  I  had  an  idea  that  everything 
ought  to  be  settled  by  my  own  party,  and  that  the  Republican  party 
ought  not  to  have  anything  to  do  with  anything,  and  that  the  whole 
country  was  ruined  if  they  did.  Now,  in  principle  I  am  a  better 
Democrat,  in  my  judgment,  than  I  have  ever  been;  but  I  am  far  less 
partisan.  I  have  radically  changed  in  this  view  of  statesmanship 
and  politics.  Instead  of  believing  that  every  issue  ought  to  be  at 
once  drawn  into  the  maelstrom  of  partisan  politics,  my  view  is  that 
as  long  as  it  is  possible  every  issue,  and  especially  every  business 
question,  ought  to  be  kept  out  of  the  domain  of  politics;  and  that 
we  get  a  better  settlement  of  questions  when  we  all  cooperate  to- 
gether upon  broad-gauge,  patriotic,  nonsectional,  nonpartisan  lines 


CURRENCY   LEGISLATION.  11 

than  we  do  in  any  other  conceivable  way.  And  I  am  extremely 
anxious  that  this  great  question,  which  I  think  involves  much  of  the 
future  of  the  country,  shall  be  settled  in  that  way.  For  while  I 
believe,  as  I  have  said,  that  the  country  will  be  prosperous  again  in 
another  period,  if  we  could  have  a  sensible,  broad-gauge,  businesslike 
revision  of  our  whole  banking  and  currency  system,  making  it  adapt- 
able to  all  sections  and  all  conditions,  and  putting  it  beyond  the 
control  of  any  section  or  any  State,  I  believe  that  when  that  era 
comes  it  will  be  longer  maintained  and  more  universally  beneficial 
than  it  would  be  without  such  action. 

I  have  an  infinite  faith  in  the  patriotism  and  wisdom  of  the 
American  people  when  you  do  not  stir  them  up  on  sectional  or 
partisan  lines;  and  when  you  do  I  have  not  much  faith  in  what  is 
done.  North  or  south,  east  or  west,  they  are  all  much  alike.  Wlien 
you  get  them  stirred  up  they  run  off  on  their  traditional  tangents— 
always  wrong,  no  matter  which  section  it  is.  We  are  all  the  product 
of  environment.  If  I  had  been  raised  in  Illinois,  and  run  when  I 
was  a  young  man  with  Abraham  Lincoln,  I  w^ould  have  thought  he 
knew  it  all  and  was  the  greatest  and  best  man  in  the  country,  and 
that  Jeff  Davis  and  Robert  E.  Lee  were  simply  nothing.  It  is  very 
natural,  as  it  is,  that  I  think  rather  the  converse,  having  been  raised 
down  in  the  other  section.  [Laughter.]  That  is  all  there  is  about  it, 
and  that  is  the  principle  we  go  on  all  the  way  around. 

Banking  is  a  colorable  business.  It  takes  color  from  its  environ- 
ment. It  has  to.  Banks  which  are  in  manufacturing  sections,  banks 
which  are  in  cotton  sections,  banks  which  are  in  wheat  sections,  banks 
which  are  in  mining  sections,  banks  which  are  in  cattle  sections,  banks 
which  are  in  lumber  sections  necessarily  partake  of  the  business  situ- 
ation and  conditions  with  which  they  must  locally  deal.  And  so  if 
we  have  a  general,  comprehensive  system  all  these  elements  must  be 
brought  into  cooperation  and  not  forced  into  antagonism,  to  the 
injury  of  all. 

Now,  Mr.  Chairman,  I  think  highly  of  what  the  bankers  have  done. 
But,  unfortunately,  and  I  think  in  the  main  unwisely,  too,  and 
unfairly,  the  banker  as  a  rule  bears  about  the  same  relation  to  the 
populace  that  the  railroad  magnate  does,  The}?^  look  on  him  with 
suspicion.  They  suspect  that  he  has  a  rabbit  foot  in  every  pocket, 
and  that  he  wants  a  scheme  by  which  they  will  be  further  milked  in 
his  individual  interest.  So  that  the  country  is  prepared  to  discount 
at  the  start  any  recommendation  from  the  bankers'  associations.  They 
look  on  them  something  like  the  good  prohibition  people  would  look 
upon  a  recommendation  of  the  brewers'  associations.     [Laughter.] 

How  can  all  this  be  avoided?  Can  it  be  avoided  in  any  better  way 
than  by  having  a  nonpartisan,  nonsectional  commission  appointed  by 
the  President  which  will  bring  into  cooperation  nine  of  the  ablest  and 
best  men  of  this  country  ?  No  President  of  the  United  States  would 
dare,  or  would  desire,  as  far  as  that  is  concerned,  to  do  anji:hing  else 
under  this  sort  of  a  bill  than  to  attempt  to  pick  two  of  the  very  best 
men  in  character  and  capacity  that  each  section  could  furnish  to  put 
on  this  commission.  Hearings  are  provided  for  in  all  the  great 
centers  that  touch  the  different  great  industries  of  the  country — New 
York,  which  would  reach  all  of  New  England  and  all  of  the  manu- 
facturing and  stock-jobbing  centers;  Chicago,  which  would  touch  all 
the  great  wheat  and  northwest  lumber  interests ;  St.  Louis,  which 


12  CURRENCY    LEGISLATION. 

would  reach  all  the  great  corn  section  and  agricultural  section  of  the 
countr}' ;  Denver,  which  would  reach  all  the  great  mining  section ; 
Fort  "\Yorth.  which  would  reach  the  greatest  cattle  section  in  the 
world — the  whole  thing  is  cow  business  out  there.  [Laughter.]  AVhy, 
if  all  the  cowmen  "  lay  down  "  on  my  friend  Gillespie  he  would  not 
get  a  hatful  of  votes.  They  run  that  section  down  there ;  and  if  this 
commission  is  created  I  would  like  my  friend  Gillespie's  town  put  in, 
for  I  think  it  would  help  him.  I  hope  those  felloAvs  will  not  beat  him. 
They  will  make  a  great  mistake  if  they  do;  but.  then,  people  do  fool 
things  sometimes.  [Laughter.]  I  have  been  threatened  myself  occa- 
sionally. And  hearings  are  also  provided  for  in  Xew  Orleans,  which 
touches  the  great  sugar  and  rice  industries,  and  in  Atlanta,  which  is 
in  the  heart  of  the  cotton  countr.v  and  the  cotton-mill  country. 

You  ma}^  say:  "We  can  have  hearings  here.  ^Ve  are  not  a  lot  of  in- 
competents." Well,  I  do  not  know  about  that.  [Laughter.]  I  do  not 
want  to  reflect  on  anybody.  I  have  made  confession  for  myself.  If 
any  of  you  gentlemen  agree  with  me,  I  will  not  require  you  to  speak 
out  now.  I  have  no  authority  to  do  so.  But  what  will  your  hearings 
amount  to?  What  do  these  hearings  ordinarily  amount  to  in  com- 
mittee? You  and  I,  who  come  here.  know.  It  is  a  cinch  that  the  fel- 
low that  wants  a  favorite  scheme  of  his  adopted,  and  has  a  lot  of 
money  with  which  to  pay  his  way  and  his  hotel  bills,  will  be  here. 
That  is  a  cinch.  But  who  represents  these  great  interests  all  around 
the  country?  ^^liat  will  the  hearings  amount  to,  except  to  give  some 
partial  view,  and  what  approbation  on  the  part  of  people  will  they 
bring?  That  is  the  real  question.  This  is  a  representative  Govern- 
ment. If  the  people  want  rag  money  or  anj^  other  kind  of  money,  or 
any  other  sort  of  banking  system,  they  are  entitled  to  it.  That  is  the 
truth  about  it ;  and  we  ought  to  attempt  to  give  them  what  they  want. 
"\Aliy,  I  have  no  more  intelligent  idea  about  what  sort  of  a  banking 
and  currency  system  the  intelligent  people  of  mj  district  want  than  a 
goat.    Have  you  any  idea  what  your  people  want,  or  anybody  else? 

You  may  say :  "  We  can  give  them  what  we  think  they  ought  to 
have,  and  then  invite  their  approval."  I  will  tell  you  what  you  will 
find  as  the  result  of  that.  A  few  broad-gauge,  courageous  men,  with 
the  real  elements  of  leadership,  perhaps  to  the  number  of  about  fifteen 
in  the  House  (and  it  is  doubtful  just  who  of  us  would  be  in  that  class, 
and  I  will  not  discuss  that  at  all) .  would  be  willing  to  proceed  on  that 
basis.  But  you  and  I  know  that  the  average  Member  of  Congi'css 
would  at  once  get  his  ear  to  the  ground  and  would  be  disposed  to 
"  head  up  "  in  his  vote  and  in  his  views  the  way  that  would  maintain 
that  sympathetic,  telephonic  communication  between  him  and  his  con- 
stituents, and  preserve  the  continuity  of  office  so  dear  to  his  heart. 

Mr.  Weeks.  Mr,  Chairman,  I  would  like  to  ask  jSIr.  Burgess  if  he 
thinks  that  the  people  of  his  district  or  any  other  district  Icnow  what 
they  want? 

Mr.  Bfrgess.  I  do  not.  That  is  exactly  my  contention ;  and  it  is 
natural  that  they  should  not,  because  there  has  never  been  any  public 
discussion  of  this  great  question.  If  you  gentlemen  will  remember,  we 
had  the  Monetary  Commission 

The  CnAiR:srAN.  Right  on  that  point.  Mr.  Weeks.  I  will  state  that 
you  asked  the  question  I  have  been  hoping  Mr.  Burgess  wouhl  antici- 
pate, or  that  somebody  would  ask.  Can  those  people  tell  you  what 
they  ought  to  have? 


CURRENCY   LEGISLATION.  13 

Mr.  Burgess.  I  think  so,  Mr.  Chairman. 

The  Chairman.  How  can  they  tell  you  anything  about  the  eco- 
nomic laws  that  control  or  the  principles  of  banking,  the  men  that  are 
in  the  cotton  business,  or  the  men  that  are  in  the  cattle  business,  or 
the  men  that  are  in  the  wheat  business  ?  How  can  they  necessarily  tell 
3'ou  anything  about  Mr.  Burgess's  bill  ? 

Mr.  Burgess.  I  will  tell  you.  I  think  there  is  an  almost  universal 
popular  misconception  of  mankind  as  to  the  difference  in  judgment 
between  men.  It  does  not  grow  out  of  difference  in  capacity  so  much 
as  it  does  out  of  difference  in  information. 

The  Chairman.  Let  me  ask  you  another  question,  and  then  you  can 
complete  your  remarks. 

Mr.  Burgess.  Very  well. 

The  Chairman.  In  other  words,  suppose  that  in  1895  or  1896  such 
a  commission  had  asked  about  gold  and  silver  in  the  United  States — 
nine-tenths  of  the  people  would  have  said :  "We  want  free  silver  "  or 
"  both  gold  and  silver,"  would  they  not  ? 

Mr.  Burgess.  I  expect  so. 

The  Chairman.  Go  on,  now;  I  simply  wanted  to  illustrate  the 
point. 

Mr.  Burgess.  I  expect  so. 

The  Chairman.  But  after  the  discussion  they  knew  more. 

Mr.  Burgess.  Now  let  me  give  you  my  idea;  and  that  is  exactly 
what  I  am  trying  to  provide  for  in  this  bill.  I  am  trying  to  provide 
for  the  local  dissemination  of  knowledge,  and  a  local  discussion 
among  all  sections  of  this  very  problem ;  because  I  believe  that  when- 
ever you  get  the  whole  people  to  study  a  question,  independent  of 
sectionalism  and  partisan  politics — which  tended  to  obscure  the 
money  question,  as  we  all  know — then  you  will  get  finally  an  over- 
whelming cooperation  along  sensible  lines.  I  believe  that  the  com- 
mon people  have  more  capacity  than  we  are  wont  to  think.  My 
experience  as  a  lawyer  has  been  this:  Take  twelve  honest  farmers 
who  never  read  the  Constitution,  and  they  do  not  have  to  have  gone 
through  a  law  school  to  be  able  to  understand  the  force  of  a  consti- 
tutional point,  if  you  have  sense  enough  to  make  it  clear  to  them; 
and  they  will  reach  as  logical  a  result  in  their  verdict,  and  as  certain 
a  result,  as  twelve  of  the  most  talented  constitutional  lawyers,  as  a 
matter  of  fact.  Now,  take  it  on  any  other  question.  All  you  have 
to  do  is  to  give  the  ordinary  man  the  information  necessary  upon 
which  to  reach  conclusions,  and  he  will  reach  just  ones.  There  is 
not  so  much  difference  in  men's  capacity  to  reason  as  there  is  in  the 
horizon  of  their  knowledge. 

Mr.  Weeks.  Mr.  Burgess,  you  referred  to  Mr.  Gillespie,  for  in- 
stance, as  representing  a  Texas  district. 

Mr.  Burgess.  Yes. 

Mr.  Weeks.  I  would  like  to  ask  you  if,  in  your  judgment,  that 
district  of  the  city  of  Fort  Worth  could  send  a  man  on  this  commis- 
sion which  you  suggest,  or  any  other  commission,  which  could  better 
represent  it  than  Mr.  Gillespie?  He  is  sent  here  for  that  purpose. 
This  is  a  representative  Government;  and  he  is  studying  this  ques- 
tion and  has  been.  Where  is  the  man  in  Fort  Worth  that  is  going 
to  represent  them  on  the  currency  question  any  better  than  Mr. 
Gillespie  ? 


14  CUREENCY  LEGISLATION. 

Mr.  Burgess.  I  will  give  you  the  complete  answer  to  that,  Avithout 
any  reflection  on  Mr.  Gillespie  or  any  other  member  of  the  committee. 
If  you  will  take  this  very  committee  and  provide  for  full,  public  hear- 
ings all  over  the  country,  so  that  time  may  be  given  for  the  public 
mind  to  act,  and  so  that  this  information  may  be  brought  out  in  the 
daily  papers  of  New  York  and  Chicago  and  St.  Louis  and  Denver 
and  Fort  Worth  and  New  Orleans  and  Atlanta,  and  representative 
citizens  in  all  these  great  sections  can  appear  before  this  committee 
and  have  three  or  four  days'  hearings,  and  all  of  that  knowledge  be 
disseminated  and  the  people  interested,  I  would  just  as  soon  trust 
the  recommendation  of  this  committee  as  perhaps  any  like  number 
of  men  that  might  be  appointed  by  the  President.  The  personnel  is 
not  so  important  in  the  matter,  except  that  of  course  they  ought  to 
be  men  representative  of  those  localities. 

Mr.  Waldo.  Mr.  Burgess,  you  have  evidently  thought  about  this 
question  a  good  deal.  There  are  evidently  but  two  plans  now  under 
consideration,  or  that  have  been  suggested  by  anybody,  that  are  really 
best.  One  of  them  is  the  bill  that  is  now  really  under  consideration, 
the  Fowler  bill,  providing  for  credit  currency;  the  other  is  the  Aldrich 
bill,  which  merely  provides  for  an  emergency  currency  to  be  used  in 
case  of  panic,  being  practically  the  same  that  we  have  now,  except 
that  it  is  more  highly  taxed,  and  is  to  be  secured  by  other  kinds  of 
bonds.  Have  you  at  present  any  idea  which  you  would  care  to  express 
with  regard  to  the  advisability  of  either  one  of  those  plans? 

Mr.  Burgess.  Yes,  sir.  I  have,  rather  by  a  process  of  exclusion, 
reached  a  conclusion  as  to  how  I  should  vote  on  any  of  these  matters 
if  they  came  up. 

Mr.  Waldo.  I  should  like  to  hear  that. 

Mr.  Prince.  Before  that,  I  would  like  to  ask  one  question  along 
the  lines  of  Mr.  Burgess's  remarks.  You  and  I  have  been  here  for 
some  number  of  years  in  Congress;  have  we  not.  Mr.  Burgess? 

Mr.  Burgess.  Yes,  sir. 

Mr.  Prince.  Do  you  know  of  any  commission  appointed  by  Con- 
gress whose  findings  ever  received  any  attention  after  the  commission 
reported  to  the  House  ? 

Mr.  Burgess.  Oh,  I  think  so. 

Mr.  Prince.  "V\Tiat  one? 

Mr.  Burgess.  I  think  the  Industrial  Commission  has  had  a  marked 
effect  on  legislation.  I  think  its  work  appealed  to  the  whole  country. 
I  think  the  report  of  the  Waterways  Commission  will  have  a  tre- 
mendous influence. 

Mr.  Prince.  I  have  no  doubt  about  that;  but  that  commission  has 
not  reported. 

Mr.  Burgess.  I  think  the  report  of  the  Monterey  Commission  had 
a  tremendous  effect  on  the  intelligent  thought  of  the  countrj^;  and  if 
the  subject  could  have  been  kept  out  of  politics,  I  think  it  would 
likely  have  led  to  a  practical  settlement  of  the  question  long  before 
it  did.  I  believe  that  we  have  never  had  a  commission  of  any  re- 
spectability at  all  that  has  not  been  valuable.  It  may  not  have  re- 
sulted in  direct  legislation  in  accord  with  its  recommendations,  and 
this  may  not.  I  do  not  say  that  it  will.  But  I  say  that  it  is  the  best 
way  in  which  you  will  be  able  to  reach  all  sections  and  all  sorts  and 
conditions  of  men,  and  bring  about  a  general  approbation  of  any 
definite  banking  and  currency  scheme. 


CURRENCY   LEGISLATION.  15 

If  you  pass  the  Aldrich  bill,  do  you  know  what  will  happen  politi- 
cally ?  The  people  of  every  section  outside  of  the  East,  Republicans 
or  Democrats,  will  jump  on  it  as  a  Wall  street  scheme;  because  I  find, 
in  traveling  out  in  the  Middle  West  and  the  Northwest,  that  the  Re- 
publican out  in  that  section  has  precisely  the  same  idea  of  the  eastern 
Republican  that  the  southern  Democrat  has  of  the  eastern  Democrat. 
He  looks  on  him  with  suspicion  from  the  start. 

Mr.  Pujo.  We  are  not  all  that  way,  Mr.  Burgess. 

Mr.  Burgess.  Perhaps  not ;  but  they  are  nearly  all  that  way.  That 
is  my  notion  about  it.  I  find,  in  making  trips  out  in  my  part  of  the 
country,  and  coming  in  contact  with  citizens  of  representative  thought 
and  intelligence,  that  they  are  disposed  to  think  the  Republicans  and 
Democrats  very  much  alike,  and  that  Wall  street  is  in  it  for  Wall 
street  alone.  I  would  not  be  surprised,  myself,  if  there  was  a  good 
deal  of  truth  in  that.  That  is  rather  natural.  Not  that  I  think  that 
every  man  who  has  any  property  over  there  is  corrupt  and  a  scoun- 
drel. I  think  that  is  demagogy  and  ridiculous.  That  is  my  opinion 
about  it.  But  that  will  follow.  I  think  that  the  main  trouble  about 
doing  the  wise  thing,  to  which  I  am  very  favorably  inclined  (because 
I  infinitely  prefer  the  Fowler  bill,  in  a  general  way,  to  any  such  bond- 
asset  currency  scheme  as  the  Aldrich  bill),  is  that  you  will  never  get 
that  bill  through  the  House  unless  you  conduct  a  great  campaign  of 
education  among  the  people. 

Mr.  Hayes.  Let  us  begin  it  right  here,  Mr.  Burgess. 

Mr.  BuEGESS.  Very  well;  I  am  lending  all  that  there  is  in  me  to- 
ward it  now.  I  am  trying  my  best,  and  I  will  be  glad  to  have  your 
cooperation.  But  the  people  do  not  hear  very  much  about  what  goes 
on  in  this  committee  room.  Some  of  us  would  be  very  much  more 
prominent  at  home  if  that  which  is  done  outside  of  the  Congressional 
Record  were  as  well  known  at  home  as  that  which  is  shown  by  the 
Congressional  Record. 

Mr.  Hayes.  Very  true. 

Mr.  Burgess.  And  that  is  the  trouble  about  committee  hearings. 
If  it  comes  to  a  vote,  I  will  state  in  a  general  way  what  I  think — and 
I  will  qualify  that ;  I  will  not  agree  to  be  bound  in  the  future  by  any- 
thing I  say  along  this  line  now.  [Great  laughter.]  I  am  frank  to  say 
that  I  am  uncertain ;  I  am  feeling  my  own  way ;  and  as  I  started  to 
say  a  while  ago,  when  I  was  interrupted  by  one  of  the  gentlemen,  so 
far  as  I  have  reached  any  conclusion  it  has  been  reached  more  by  an 
exclusive  process  than  it  has  been  by  any  comprehensive,  constructive 
study  of  systems  as  systems. 

For  instance,  I  shall  not  vote  for  any  guarantee-fund  scheme.  That 
is  out  of  it  with  me.  I  think  that  would  be  a  great  mistake.  Some 
great  men  and  some  wise  men  and  some  good  men  are  for  it.  I  have 
no  controversy  with  them. 

The  Chairman.  You  mean  the  guaranteeing  of  deposits? 

Mr.  Burgess.  Yes,  sir;  I  think  that  would  be  a  great  business 
blunder. 

The  Chairman.  Why? 

Mr.  Burgess.  I  can  give  two  or  three  reasons;  but  I  will  give  one 
that  is  all-sufficient  with  me,  and  I  received  it  in  a  letter  from  an  old 
friend  of  mine  whom  I  regard  as  one  of  these  plain,  old  farmers,  but 
one  who  has  a  "  blue  bucketful "  of  sense  about  anything.  I  wrote 
and  asked  him  what  he  thought  about  this  thing,  and  in  my  judg- 


16  CURRENCY   LEGISLATION. 

ment  he  laid  it  out  in  a  breath.  He  said:  "  George,  the  Book  says 
that '  the  fear  of  the  Lord  is  the  beginning  of  wisdom.'  In  my  judg- 
ment the  fear  of  the  depositor  is  the  beginning  of  wisdom  in  banking." 
[Laughter.]     That  is  my  view. 

The  Chairman.  Wait  a  minute,  Mr.  Burgess;  let  me  ask  you  a 
question  right  there.  Will  you  state  how  many,  in  your  mind,  out  of 
the  5,000,000  depositors  of  the  country  (assuming  that  figure  for  this 
purpose)  are  intelligent  depositors  that  know  a  bank  statement  when 
they  see  it;  and  if  they  do  know  a  bank  statement,  how  many  know 
anything  about  the  true  inwardness  of  the  bank? 

Mr.  Burgess.  I  think  there  is  a  great  deal  in  that,  Mr.  Chairman. 

The  Chairman.  Well,  how  many?  Make  a  guess,  in  your  judg- 
ment, as  to  how  many  out  of  the  5,000,000  depositors,  in  the  first 
place,  know  what  a  bank  statement  is ;  and  how  many  of  the  5,000,000 
who  have  deposits  in  banks  know  anything  about  the  bowels  of  the 
banks  in  which  they  are  putting  their  deposits. 

Mr.  Burgess.  In  a  time  of  profound  banking  peace  and  universal 
confidence,  when  nobody  is  afraid,  very  few  pay  any  attention  to 
those  things.  But  whenever  the  slightest  cloud  gathers  on  the  hori- 
zon the  knowledge  of  the  depositors  begins  to  increase  very  rapidly. 

The  Chairman.  Does  that  do  the  depositor  any  good  ? 

Mr.  Burgess.  Yes. 

The  Chairman.  After  the  bank  fails  ? 

Mr.  Burgess.  No;  not  after  it  fails. 

The  Chairman.  Does  it  do  him  any  good  to  go  to  the  bank  after 
its  business  is  crippled  ? 

Mr.  Burgess.  Yes ;  it  does  the  banker  an  immense  amount  of  good. 
Looked  at  conversely,  it  may  be  true  that  not  a  depositor  really 
knows  about  the  condition  of  his  bank;  but  the  bank  people  do  not 
know  how  much  he  knows.  And  when  the  directors  and  the  presi- 
dent and  the  cashier  get  together  to  scheme  about  what  they  will  do 
with  their  deposits,  they  are  more  influenced  by  the  fear  of  the  de- 
positor than  they  are  by  anything  else  on  earth  to  manage  their  busi- 
ness conservatively.  It  operates  as  a  tremendous  check  on  them  all 
the  time;  and  this  scheme  would  take  all  the  check  off.  Then,  in  a 
period  of  inflation,  God  only  knows  what  would  happen  to  the 
country. 

The  Chairman.  Suppose  we  were  a  board  of  directors  of  a  bank, 
and  suppose  we  had  bought  our  insurance  for  the  bank ;  do  you  mean 
to  say  that  there  is  one  man  sitting  at  this  table  who  would  vote  for 
an  unsound  loan  or  do  a  thing  if  he  was  insured  that  he  would  not 
have  done  before? 

Mr.  Burgess.  Yes,  sir. 

The  Chairman.  In  making  lawful  profits? 

Mr.  Burgess.  Yes,  sir;  emphatically. 

The  Chairman.  What? 

Mr.  Burgess.  I  do  mean  to  say  that  very  thing. 

The  Chairman,  Hold  on.  Suppose  we  all  owned  the  bank;  sup- 
pose that  every  share  of  the  stock  of  this  bank  was  represented,  and 
there  was  a  million  dollars  of  it,  say, 

Mr,  Burgess,  Yes, 

The  Chairman,  Do  you  mean  to  say  that  there  is  one  man  sitting 
here  that  would  vote  to  accept  a  note  after  the  bank  was  insured 


CURRENCY   LEGISLATION.  17 

that  he  would  not  before,  so  as  to  cut  clown  his  profits,  so  as  to  ruin 
his  reputation,  so  as  to  destroy  his  standing? 

INIr.  Burgess.  No,  no.  Now.  wait  a  minute.  If  you  will  pardon 
me,  if  we  all  believe  that  to  make  a  loan  would  destroy  our  credit  and 
break  dow^n  our  business  we  would  not  make  it,  whether  the  deposits 
were  guaranteed  or  not. 

The  Chairman.  All  right. 

Mr.  Burgess.  Now,  wait  a  minute.  If  the  deposits  were  guaran- 
teed, and  there  was  some  question  about  the  security,  some  question 
about  whether  the  shares  of  stock  that  were  invited  to  invest  in  a 
particular  enterprise  would  earn  a  certain  amount  in  dividends,  the 
fear  that  the  depositor  might  kick  about  the  investment  would  make 
us  scrutinize  the  investment  much  more  closely.  That  is  what  I  think 
about  it. 

The  Chairman.  Do  you  think  the  thought  of  the  depositor  would 
have  any  effect  at  all  on  that  as  compared  with  the  judgment  of  the 
men  who  were  voting  their  own  money  ?  In  the  last  resort  it  is  their 
capital  and  their  funds,  and  thej^  would  be  voting  them  away  with  a 
double  assessment  on  top  of  them.     Do  you  think  they  would  do  that? 

Mr.  Burgess.  I  do.  Yes,  sir ;  I  do.  I  do  not  think  there  is  any 
doubt  about  it.     Let  me  illustrate  a  case,  without  giving  names. 

A  little  bank  of  which  I  knew,  with  $50,000  capital,  had  $340,000 
deposits  belonging  to  farmers.  There  was  offered  to  it  for  discount 
some  eastern  paper,  at  8  per  cent,  amounting  to  about  $150,000.  One 
of  the  depositors  who  had  only  $15,000  in  the  bank  out  of  this  three 
hundred  and  forty  odd  thousand  happened  to  hear  of  it;  and  he  re- 
marked to  one  of  the  directors :  "  If  you  loan  those  deposits  on  that 
eastern  paper,  suppose  it  should  turn  out  that  it  could  not  be  met,  or 
got  tied  up  in  some  way  in  the  banks  up  in  New  York  or  Chicago, 
and  these  depositors  should  want  their  money,  and  I  should  want 
mine — then  what  are  you  going  to  do  ?  "  And  the  old  German  presi- 
dent of  the  bank  said,  "  Veil,  ve  vill  not  loan  them  dot  money." 
[Laughter.] 

Now  let  me  go  along  that  line  a  little  further. 

The  Chairman.  Just  a  moment.  Do  you  know  that  when  the 
deposits  and  the  notes  are  guaranteed,  the  fund  is  not  responsible  for 
a  cent  until  the  entire  stock  of  the  bank  is  wiped  out,  and  a  double 
amount  put  in? 

Mr.  Burgess.  Oh,  yes;  I  understand  that. 

The  Chairman.  And  the  bank  must  absolutely  fail  and  all  the 
men  be  discredited? 

Mr.  Burgess.  Yes ;  I  understand  that. 

The  Chairman.  And  yet  you  say  that  the  borrowers  would  sit 
down  with  the  owners  of  the  capital  stock,  and  the  banks  would  make 
a  more  unsound  loan  after  they  were  insured  than  they  would  before, 
when  it  is  their  own  money  they  put  up  to  do  it  ? 

Mr.  Burgess.  Yes,  sir.    I  will  put  it  this  way 

Mr.  Powers.  I  would  like  to  ask  a  question.  Mr.  Burgess,  do  I 
understand  your  position  to  be  this:  If  the  deposits  were  guaranteed, 
so  that  the  bank  did  not  fear  a  run  upon  it  by  the  depositors,  and  so 
that  the  depositors  would  feel  all  right,  is  it  your  idea  that  some 
banks  that  are  not  managed  conservatively — and  there  are  some  not 
managed  conservatively — might  underwrite  stocks  or  make  loans 
3738]— 08 2* 


18  CURRENCY   LEGISLATION. 

where  there  was  a  prospect  of  large  profits,  believing  that  they  could 
jDLiU  through,  which  they  would  not  underwrite  and  would  not  make 
if  they  had  the  fear  of  the  depositors  behind  them?  Is  that  your 
position  ? 

Mr.  Burgess.  That  is  exactly  my  position. 

Mr.  PoAVERS.  I  am  very  much  of  the  same  opinion,  to  be  frank  with 
you.  And  in  addition  to  that,  is  it  really  just  and  fair  to  make  banks 
that  do  a  conservative  banking  business  responsible  for  the  doings  of 
banks  that  do  not  do  a  conservative  banking  business  ? 

Mr.  Burgess.  I  think  not. 

Mr.  Powers.  Hence  I  have  not  been  able,  myself — I  agree  with 
you — to  see  my  way  clear  to  favor  the  guaranteeing  of  deposits. 

Mr.  Burgess.  Before  passing  that — because  I  want  to  exclude  some 
things  and  reach  a  conclusion  and  give  the  committee  my  opinion  for 
whatever  they  think  it  is  worth  about  the  systems  involved — I  want 
to  briefly  state  two  other  objections  to  the  guarantee  proposition. 
One  is  that  it  smacks  of  paternalism,  not  to  say  socialism,  to  "  jack- 
pot," if  you  will  permit  the  expression,  the  wise  and  the  honest  with 
the  foolish  and  dishonest  [laughter] ,  and  tax  all  to  protect  the  depos- 
itor against  the  action  of  the  foolish  or  dishonest. 

The  Chairman.  It  is  just  like  life  or  fire  insurance,  is  it  not? 

Mr.  Burgess.  Yes,  sir;  but  I  am  against  the  Government  going 
into  life  or  fire  insurance. 

The  Chairman.  But  you  do  not  understand  tha(^  the  Government 
is  going  into  this  fund  under  my  bill  ? 

Mr.  Burgess.  I  do,  Mr.  Chairman. 

The  Chairman.  Why,  not  at  all,  not  for  one  cent. 

Mr.  Burgess.  Oh,  I  understand  the  Government  does  not  pay — — 

The  Chairman.  Not  one  cent. 

Mr.  Burgess.  I  understand  that;  but  the  Government  forces  the 
system,  and  is  responsible  for  it  if  it  enacts  it  into  legislation.  It  is 
no  use  to  say  that  the  Government  does  not  pay  anything.  It  does 
not  affect  the  principle  a  particle  whether  we  make  an  appropriation 
to  force  a  thing  to  be  done  or  whether  we  do  it  with  money  legisla- 
tion. It  is  utterlj'^  immaterial;  we  commit  ourselves  to  the  govern- 
mental principle  in  either  event 

The  Chairman.  I  beg  your  pardon. 

Mr.  Burgess  (continuing).  Of  requiring  the  honest  and  the  intelli- 
gent to  pay  proportionately  to  protect  somebody  against  the  acts  of 
the  dishonest  and  of  the  unintelligent.  That  is  exactly  what  you  are 
doing. 

The  Chairman.  Hold  on.  If  that  were  compulsory,  you  are 
right;  but  if  it  is  voluntary,  then  you  are  all  wrong. 

Mr.  Burgess.  Oh,  well,  that  is  a  distinction  without  a  difference. 
If  you  enact  that  sort  of  a  law,  you  will  force  them  into  it.  There  is 
no  difference  between  coercion  and  war,  legislatively.  It  is  the  same 
thing.  I  would  just  as  soon  make  them  do  it  as  to  make  the  condi- 
tions so  that  they  would  have  to  do  it.  There  is  no  use  in  making  a 
bulwark  of  that  sort  of  a  thing.  We  will  have  to  be  responsible  for 
the  establishment  of  the  principle;  and  it  is  a  dangerous  one.  Why 
not  do  this?  Why  not  provide  a  tax  to  recoup  a  bank  for  its  lost 
loans  ? 

The  Chairman.  Ah,  that  is  a  very  different  thing. 

Mr.  Burgess.  "Why? 


CURRENCY   LEGISLATION.  19 

The  Chairman.  I  will  tell  you  why — because  there  intervenes  be- 
tween every,  loss  the  bank  makes  the  double  responsibility,  all  the 
stock,  and  the  personal  reputations  of  the  men. 

Mr.  Burgess.  That  is  true;  but  they  are  both  keyed  upon  the  as- 
sumption that  they  will  act  equally  honestly. 

The  Chairman.  They  are  just  as  difi'erent  as  day  and  night. 

Mr.  Burgess.  That  is  all  right ;  but  they  are  both  keyed  upon  the 
assumption  that  the  banker  will  act  equall}^  intelligently  and  hon- 
estly whether  the  funds  are  guaranteed  or  not. 

The  Chairman.  Oh,  I  beg  your  pardon ;  I  beg  your  pardon.  Just 
see  the  difference:  Sup^DOse  we  are  a  bank  sitting  here;  suppose  the 
law  provided  that  if  we  made  a  loss  the  banks  of  the  country  could 
be  assessed  to  make  up  that  loss.  In  that  event  we  w^ould  take  any 
kind  of  a  chance,  because  our  stock  and  our  personality  would  not  be 
responsible  for  it.  But  in  the  other  case  the  bank  is  wiped  out,  our 
reputations  are  gone,  and  the  institution  is  absolutely  eliminated  be- 
fore the  fund  is  ever  re'^ponsible  for  a  loss. 

Mr.  Burgess.  Well,  I  think  that  is  true. 

The  Chairman.  Is  not  that  true  ? 

Mr.  Burgess.  That  is  true,  but 

Mr.  Weeks.  Mr.  Chairman,  I  take  it  that  we  would  like  to  get  Mr. 
Burgess's  idea  on  this  question. 

The  Chairman.  Yes. 

Mr.  Weeks.  I  would  like  to  ask  him  one  question  in  line  with  the 
question  you  asked  him  a  little  while  ago  about  the  5,000,000  of  de- 
positors. The  inference  I  drew  from  that  (|uestion  was  the  depositors 
did  not  make  any  note  of  the  character  of  the  bank  in  which  they 
placed  their  deposits;  that  they  did  not  know  bank  statements,  and 
that  they  did  not  know  much  about  it.  I  would  like  to  ask  ]\Ir.  Bur- 
gess if,  in  his  opinion,  where  the  depositor  has  a  choice  in  banks,  he 
does  not  believe  that  4,909,000  of  those  5,000,000  depositors  do  inquire 
about  the  bank,  whether  it  is  conservatively  managed  or  not,  and 
place  their  deposits  where  they  believe  they  will  be  safely  and  wisely 
taken  care  of? 

Mr.  Burgess.  Oh,  of  course  I  do.  If  the  gentleman  will  take  my 
statement,  put  concretely,  a  little  while  ago,  all  of  that  is  included  in 
the  idea  that  those  depositors  now  act  intelligently  and  honestly  as 
against  dishonesty  and  want  of  business  wisdom.  But  the  depositors 
then  will  be  indifferent.  That  will  put  a  premium  on  unbusinesslike 
methods,  so  to  speak. 

Mr.  Weeks.  Absolutely. 

Mr.  Burgess.  And  instead  of  putting  the  burden  on  the  depositor, 
as  it  is  now,  just  as  it  is  on  any  other  creditor,  to  determine  whether 
it  is  wise  to  make  a  loan  or  not  (which  is  the  correct  business  prin- 
ciple, as  I  understand  it),  it  will  eliminate  all  of  that,  and  it  will  be 
merely  a  question  of  business  or  favor  as  to  where  the  fund  is. 

Mr.  Waldo.  It  would  be  a  question  of  interest,  would  it  not?  In 
that  case  it  would  be  a  question  of  which  bank  would  pay  the  most 
interest. 

Mr.  Burgess.  Either  interest  in  money  or  interest  in  some  other 
way. 

Mr.  Waldo.  Yes. 


20  CURRENCY   LEGISLATION. 

Mr.  Burgess.  "\Aliereas  I  think  it  is  better  to  have  the  honesty  and 
business  methods  of  a  bank  investigated  by  the  depositor.  But  there 
is  another  reason,  which  is  a  practical  one ;  it  does  not  g(5  to  the  prin- 
ciple involved,  but  I  think  it  is  sufficient  to  prevent  the  passage  of 
such  a  bill  now,  even  if  it  is  wise,  and  that  is  this :  You  gentlemen  are 
perhaps  as  familiar  as  I  wit*h  the  fact  that  the  amount  of  bank  capi- 
tal and  the  amount  of  deposits  in  banks  other  than  national  banks  is 
about  equal  to  that  capital  and  those  deposits  in  national  banks.  We 
have  no  power  over  all  the  banks  that  are  not  national  banks  by  this 
legislation.  If  you  should  enact  a  guarantee  law  the  effect  Avould  be 
to  provoke  a  tremendous  crisis  among  the  depositors  in  banks  other 
than  national  banks,  which  involve  half  the  total  capital  and  credit 
of  the  country. 

The  Chairman.  What  do  you  mean  by  "  crisis?" 

Mr,  Burgess.  I  mean  this:  Unless  you  believe  that  the  passage  of 
this  sort  of  a  law  would  make  the  boys  go  down  in  their  old  socks 
and  their  safe-deposit  boxes  and  bring  out  their  money  and  redeposit 
it,  there  is  not  any  use  in  it.  And  assuming  that  that  is  true,  as  I 
think  it  is  in  large  measure 

The  Chairman.  It  would  stop  hoarding,  in  other  words  ? 

Mr.  Burgess.  Yes;  I  think  that  in  a  large  measure  that  is  true: 
that  would  be  the  temporary  effect.  But  if  that  is  true,  then  it  would 
be  equally  true  that  these  depositors  in  all  the  rest  of  the  banks  of 
the  country — State  banks,  savings  banks,  private  banks,  private  in- 
stitutions— would  at  once  hie  away  to  get  their  deposits  and  put 
them  where  they  could  not  lose  unless  they  were  bearing  interest  and 
secured  by  proper  security.  So  that  you  would'  precipitate  another 
tremendous  trouble  in  the  countrv. 

The  Chairman.  Why? 

]Mr.  Burgess.  The  answer  that  may  be  made  by  the  distinguished 
gentleman  is  that  State  banks  and  savings  banks  could  follow  suit. 
Yes:  but  what  is  going  to  happen  while  they  are  following  suit  ? 

The  Chairman.  Nothing. 

Mr.  Bi^RGESS.  I  think  there  is  something  going  to  happen. 

The  Chairman.  Nothing  at  all. 

Mr.  Burgess.  Or  else  there  is  nothing  in  the  matter. 

The  Chairman.  Nothing  at  all.  This  thing  could  all  be  done  be- 
fore that  ever  became  effective,  and  all  the  banks  in  the  country 
could  become  unified;  and  then  what  Avould  you  have?  You  would 
know  that  every  bank  had  the  same  amount  of  reserve,  instead  of 
having  trust  companies  like  the  Knickerbocker  in  New  York,  with 
sixty  millions  of  capital,  paying  4  per  cent  on  deposits,  with  no 
reserves  (and  what  they  did  have  bank  notes),  absolutely  making  a 
war  on  the  national  banks.  The  situation  there  was  such  that  one 
man  said,  when  the  question  was  up,  "  Oh.  let  them  go  to  hell;"  and 
when  the  Trust  Company  of  America  appealed  for  help  up  there,  in 
conference,  the  national-bank  people  said,  "Let  them  go  to  hell; 
they  have  been  warring  on  us  for  j^ears  and  taking  our  deposits  away 
from  us  because  they  paid  3  or  4  or  5  per  cent  interest  on  deposits." 
And  so  you  have  this  contest  going  on  in  this  country  from  one  end 
of  it  to  the  other,  without  knowing  anything  about  the  bowels  of 
your  banks.  Then,  instead  of  having  a  national  bank  on  one  corner 
and  a  savings  bank  downstairs  or  upstairs  or  around  the  corner 
transferring  securities,  you  would  know  something  about  your  banks. 


CURRENCY   LEGISLATION.  21 

Mr.  BuKGKss.  I  believe  the  chairman  will  agree  with  me  (because 
1  know,  from  reading  after  him,  that  he  has  been  a  close  student)  that 
no  other  country's  banking  system  has  any  such  feature  as  this. 

The  Chairman.  Absolutely  the  same  feature — psychologically  the 
same  feature. 

Mr.  Burgess.  "  Psychologically  "  is  a  big  w^ord. 

The  Chairman.  That  is  all  there  is  to  it. 

Mr.  Burgess.  Do  you  mean  that  the  German  system  or  the  French 
system  or  the  English  system  or  the  Canadian  system  has  any 
guarantee  of  deposits? 

The  Chair:\ian.  It  does  not  make  any  difference.  You  guarantee 
5  per  cent  on  your  notes;  and  when  you  have  the  Bank  of  France, 
which  will  take  any  amount  of  bills  and  rediscount  them,  and  the 
public  mind  at  once  upon  the  failure  of  a  bank  reverts  to  this  great 
central  bank,  psychologically  it  has  the  effect  of  quieting  these 
people. 

Mr.  Burgess.  You  will  pardon  me,  Mr.  Chairman,  if  I  buck  on  that 
'■  psj^chological  "  proposition.     [Laughter.] 

The  Chairman.  That  is  all  there  is  to  it.  There  is  where  your 
confidence  comes  from. 

Mr.  Burgess.  Now,  in  a  general  way,  I  will  state  what  my  view  is; 
and  that  leads  me  to  the  exclusion  of  some  of  these  other  matters.  I 
shall  not  vote  for  the  issue  of  any  emergency  currency  based  upon 
bonds  of  the  States,  of  the  counties,  or  of  the  municipalities.  [Ap- 
plause.] I  believe  that  will  do  infinite  harm  in  the  country.  I  be- 
lieve it  will  put  just  where  it  ought  not  to  be  power  to  control  the 
contraction  and  inflation  of  the  currency  of  the  country.  I  believe  it 
will  be  unpopular;  and  if  I  were  mean  enough  to  be  willing  to  hurt 
my  country  to  benefit  my  party,  I  would  not  Avant  a  better  thing 
than  to  have  the  Republican  party  pass  the  Aldrich  bill.  We  should 
have  the  next  House  and  the  next  Presidency,  if  they  should  do  it. 

I  want  a  banking  and  currency  system  which  will  be  controlled 
locallj^,  by  local  demand,  and  will  not  be  in  the  power  of  any  man  or 
set  of  men  to  control  at  their  sweet  will.  Hence,  in  a  general  way,  I 
would  be  in  favor  of  a  bill  the  details  of  which  I  have  not  thor- 
oughly settled  in  my  own  mind ;  but  I  w^ould  be  in  favor  of  the  appli- 
cation of  the  principle  of  the  German  system  to  our  present  national 
banking  system  in  a  workable  way.  I  believe  that  can  be  easily 
done.  I  believe  that  w^e  could  require  a  gold  reserve;  we  could  re- 
quire a  limit  to  the  issue  of  notes;  we  could  adjust  a  rate  of  interest 
which  would  make  it  work  automatically,  just  as  it  does  in  Germany; 
and  I  believe  it  would  take  but  a  few  years  of  education  and  experi- 
ence along  that  line  to  give  us  the  finest  financial  banking  and  cur- 
rency system  that  the  world  has  ever  seen,  and  I  believe  we  are 
going  to  finally  come  to  it.  That  is  one  of  the  purposes  I  have  in 
trying  to  provoke  a  general  and  a  wide  discussion.  People  misun- 
derstand these  things.  You  go  down  home  and  say :  "  I  am  for  an 
asset  currency."  They  will  say:  "Ah,  j^ou  are  for  rag  money;  you 
want  to  '  bust '  the  country ;  you  want  to  issue  money  on  anything 
and  everything."  Thej^  do  not  know  what  they  are  talking  about. 
They  do  not  know.  And  you  are  not  going  to  get  an  adequate  sys- 
tem, in  my  judgment,  unless  you  get  some  universal  intelligence 
behind  Congress  which  controls  its  action  in  the  last  analysis;  and 
you  have  too  many  men  afraid  to  support  it. 


22  CURRENCY   LEGIEILATION. 

Mr.  McKiNNEY.  Mr.  Burgess,  referring  back  to  the  main  propo- 
sition in  your  bill  for  the  appointment  of  a  commission,  that  com- 
mission to  report  at  the  next  session,  do  you  not  believe  that  that 
would  bring  about  an  almost  indefinite  delay  in  legislation  along 
this  line  ? 

Mr.  Burgess.  No;  I  think  not.  I  think  we  would  get  the  right 
sort  of  legislation  quicker  in  that  way  than  we  will  get  it  in  any  other 
way. 

Mr.  McKiNNEY.  You  would  not  hope,  would  you,  for  a  unanimous 
report  from  that  commission  ?  ■ 

Mr.  Burgess.  I  am  rather  inclined  to  think  so.  There  might  be 
some  differences  of  detail ;  but  I  think  perhaps  they  would  be  minor. 
I  think  the  major  points  of  the  system  would  be  the  same. 

Mr.  McKiNNEY.  Would  there  not  be  a  majority  report  and  a 
minority  report  to  be  fought  over  ? 

Mr.  Burgess.  I  do  not  think  so. 

Mr.  McKiNNEY.  And  another  contention  along  that  line. 

Mr.  Burgess.  I  do  not  think  so. 

Mr.  McKinney.  Would  there  not  be  divided  opinion  on  the  part 
of  the  commissioners  from  one  section  as  against  those  from  another  ? 

Mr.  Burgess.  No;  I  do  not  think  so.  My  experience  is  (and  I 
think  it  is  yours)  that  whenever  you  discuss  questions  separately  and 
apart  from  partisan  politics,  and  all  of  that,  with  men  who  really 
want  to  get  at  the  truth,  they  nearly  always  finally  agree.  Take  a 
number  of  lawyers  who  are  on  the  same  side  of  a  case,  and  are  dis- 
cussing all  the  complicated  facts  and  theories  about  it;  it  almost  in- 
variably follows  that  those  intelligent  men  get  together  and  agree 
about  what  is  the  best  line  of  fight.     It  almost  invariably  follows. 

I  think  that  this  sort  of  a  process  will  keep  this  question  out  of 
partisan  politics.  "Wliere  men  are  responsible  to  their  constituents 
for  their  action,  of  course  differences  will  arise  from  their  different 
feeling  of  environment,  and  their  preconceived  notions,  and  all  that. 
But  when  they  get  to  discussing  it  as  business  men,  I  think — now,  this 
is  only  my  opinion,  but  I  think  there  can  be  but  one  result — that  you 
will  get  a  recommendation  of  some  sort  of  a  working  system  along 
the  line  that  I  hope  to  get  and  that  I  am  in  favor  of.  I  do  not  be- 
lieve that  you  would  get  from  such  commission  a  bond — secured, 
emergency— currency  recommendation.  I  do  not  think  so.  I  do  not 
think  you  would  get  a  central  bank  proposition  from  that  sort  of  a 
commission.  But  I  think  you  would  find  that  they  would,  from  a 
study  of  it,  from  talking  with  all  the  people  and  studying  the  whole 
question,  evolve  such  a  system  as  all  of  us  would  be  willing  to  support. 

The  Chairman.  You  refer  to  the  German  bank;  that  is  a  central 
bank. 

Mr.  Burgess.  I  understand  it  is ;  and  as  the  chairman  will  remem- 
ber, "  the  German  system  made  workable  and  applied  to  our  existing 
national  and  banking  system,"  was  the  way  I  put  it.  I  am  not  in 
favor  of  a  central  bank  of  issue.  And  yet  I  am  frank  to  say  that  the 
only  reason  I  do  not  favor  it  is  for  the  same  reason  that  I  do  not 
favor  some  other  things — because  I  am  not  willing  to  trust  a  partisan 
political  power  with  the  control  of  the  volume  of  the  currency  of  the 
country.  That  is  the  only  real  reason.  If  it  were  not  for  our  bi- 
partisan government,  our  intense  political  activity,  I  really  believe 
that  that  would  be  the  sensible  thing.     That  would  be  the  practical 


CURKENCY    LEGISLATION.  23 

solution.  But  it  is  impossible,  under  our  partisan  conditions,  to  do 
that.  So  the  next  best  thing  is  to  fix  it  so  that  that  can  not  be  done, 
directly  or  indirectly,  and  let  the  local  situation  control.  That  is  my 
idea  regarding  it. 

I  thank  you  very  much,  gentlemen,  for  your  careful  attention. 

Mr.  McKiNNEY.  I  want  to  ask  you  one  other  question :  You  recog- 
nize the  fact  that  there  has  been  an  almost  universal  demand  on  the 
part  of  the  people  for  some  legislation  making  the  currency  more 
elastic? 

Mr.  Burgess.  Yes,  that  is  true^to  have  an  elastic  currency ;  so  far 
as  there  has  been  any  general  demand,  that  is  it. 

Mr.  McKiNNEY.  Now  then,  outside  of  extraordinar}^  conditions, 
the  shortage  of  money  for  the  business  of  the  country  is  usually  found 
to  exist  during  the  crop-moving  time. 

Mr.  Burgess.  Yes;  that  is  true — the  cotton  and  wheat  season. 

Mr.  McKiNNEY.  We  are  confronted  with  .a  national  campaign,  and 
it  will  be  at  its  height  during  this  crop-moving  time  next  fall;  and 
under  your  plan  we  would  have  to  let  that  go  on  under  the  same  old 
conditions,  without  trying  to  provide  a  remed}'  to  be  brought  into 
effect  and  use  at  that  time. 

Mr.  Burgess.  That  is  true.  Perhaps  the  fact  that  I  live  in  the 
largest  cotton  State  of  the  Union  and  one  of  the  largest  cotton  dis- 
tricts, and  still  am  willing  to  take  that  position,  is  pretty  conclusive 
proof  that,  in  my  judgment,  I  think  it  is  best,  and  that  my  people 
will  stand  for  it.  I  do  not  believe  we  will  get  any  emergency  cur- 
rency or  otherwise  that  will  be  worth  anj^thing  to  us.  If  you  give 
us  a  bond-secured  currency  we  will  never  get  any  of  it,  because  we  do 
not  carry  State  and  county  bonds  doAvn  with  us.  We  can  not  afford 
to.  The  rate  of  interest  is  too  high.  They  drift  to  Wall  street ;  and 
we  will  simply  have  to  turn  around  and  dig  up  some  money  when  the 
crop-moving  time  comes. 

Mr.  Weeks.  And  are  you  familiar  with  the  method  of  issuing  clear- 
ing-house certificates  ? 

Mr.  Burgess.  I  think  fairly  so. 

Mr.  Weeks.  Do  you  think  that  if  the  national  banks  of  Texas  had 
an  organization  making  them  a  clearing-house  district,  and  currency 
were  issued  based  on  the  same  general  security,  and  by  the  same 
methods  that  are  used  in  clearing-house  certificates  in  time  of  panic, 
that  would  be  a  sane  and  sound  method  of  issuing  currency  for  tem- 
porary purposes? 

Mr.  Burgess.  I  doubt  that,  and  I  will  tell  3'ou  Avhj^:  If  the  interests 
involved  in  Texas  were  confined  to  as  few  and  as  intelligent  men  as 
the  big  interests  in  New  York  are,  that  plan  would  very  likely  work. 
But  when  you  have  to  deal  with  an  infinite  number  of  men,  traders 
and  depositors  and  borrowers  in  small  amounts  scattered  over  a  large 
area  of  territor}'^,  if  j^ou  get  the  slightest  scare  with  one  of  them  the 
whole  lot  of  them  come  down  on  you,  and  j^'ou  break  down. 

I  thank  you  very  much,  Mr.  Chairman. 

STATEMENT  OF  HON.  E.  L.  FULTON,  REPRESENTATIVE  FROM 

OKLAHOMA. 

]\Ir.  FuLTox.  Mr.  Chairman,  there  are  three  bills  which  I  intro- 
duced, and  which  have  been  referred  to  the  committee,  to  which  I 


24  CUERENCY   LEG]SLATION. 

desire  to  call  joiw  attention.  But  inasmuch  as  I  wish  to  get  over  to 
the  House  I  will  not  take  up  any  time  in  going  into  a  discussion  of 
them.  I  will  simply  call  them  to  your  attention,  and  ask  that  you 
give  the  same  consideration  to  them  that  you  will  give  to  the  other 
bills  before  you. 

The  Chaikman.  Will  you  tell  us  the  numbers  of  the  bills  ? 

Mr.  Fulton.  The  first  one  is  12655.  That  is  the  first  I  want  to 
speak  about.  That  is  a  guarantee-deposit  bill.  The  other  numbers 
are  12656  and  14403.  No.  12655  is  a  guarantee-deposit  bill;  and  I 
think,  although  I  have  not  read  the  Fowler  bill — — - 

The  Chairman.  Just  go  on,  if  you  are  in  a  hurry,  and  tell  us  what 
you  wish  to  say. 

Mr.  Fulton.  That  is  what  I  was  going  to  say — that  No.  12655,  as  I 
understand  it,  is  very  similar  to  the  measure  which  is  under  con- 
sideration by  this  committee;  and  I  hope  very  much  that  a  bill  of  that 
kind  will  be  recommended  by  this  committee.  But,  in  case  it  is  not,  I 
trust  that  this  bill  12656  will  be,  or  something  substantially  like  it. 
This  bill,  12656,  provides  in  substance  that  when  any  State  has  passed 
a  law  levying  a  tax  upon  the  State  banks  for  the  purpose  of  creating 
a  fund  for  the  depositors  in  the  State  banks,  the  national  banks  in 
that  State  may  take  advantage  of  that  law  under 'such  rules  and  regu- 
lations as  the  Comptroller  of  the  Currency  may  prescribe. 

I  was  led  to  introduce  this  bill  more  particularly  because  of  the 
conditions  which  prevail  in  ni}^  own  State.  Oklahoma  has  been  the 
first  State  to  pass  a  guarantee-deposit  bill.  I  have  liad  the  matter 
up  with  the  Department,  and,  of  course,  they  have  not  given  us  any 
opinion  yet;  but  I  am  convmced  from  what  I  have  heard  from  them 
that  the  opinion  when  they  do  give  it  will  be  to  the  effect  that  with- 
out legislation  the  national  banks  can  not  take  advantage  of  that 
law.  So  far  as  I  have  been  able  to  obtain  information,  no  serious 
defect  or  serious  happening  has  occurred  by  reason  of  this  law  as 
affecting  national  banKs;  but  they  are  very  fearful  that  it  will.  It 
therefore  seemed  to  me  that  inasmuch  as  this  guarantee-deposit  prop- 
osition is  new  (although  I  firmly  believe  in  it,  and  believe  it  is  right), 
it  is  possible  because  of  its  newness  that  we  may  not  be  able  to  get  it 
through  Congress  at  this  session;  and  that  for  that  reason  it  might 
be  advisable  to  pass  such  a  measure  as  this,  so  as  to  give  the  national 
banks  protection  during  the  interim. 

Mr.  Gillespie.  When  does  your  Oklahoma  law  go  into  effect, 
Mr.  Fulton?     Some  time  in  February? 

Mr.  Fulton.  Some  time  in  February,  I  think. 

Mr.  Gillespie.  Of  this  year? 

Mr.  Fulton.  Of  this  year ;  yes,  sir.  That  is  my  recommendation ; 
and  I  have  had  a  great  number  of  letters  from  the  national  banks 
in  my  district  in  regard  to  this  matter.  T'hey  are  very  serious  in 
regard  to  it,  and  very  fearful  that  it  may  result  in  some  harm. 

The  Chairman.  Have  you  heard  anything  about  the  session  that  is 
now  progressing  in  Kansas? 

Mr.  Fulton.  Yes;  I  have  been  informed  that  they  have  called  a 
special  session  of  the  legislature  for  the  purpose  of  passing  something 
of  this  kind;  but  what  has  taken  place  there  I  know  nothing  of 
except  what  I  have  seen  in  the  paper. 

The  Chairman.  I  simply  wondered  whether  you  had  heard  of  it. 

Mr.  Fulton.  No;  I  have  not. 


CUREENCY   LEGISLATION.  25 

Mr.  Gillespie.  Is  the  legislature  now  in  session  in  Kansas? 

Mr.  Fulton.  Yes,  sir;  it  is  in  session  at  this  time;  and  Governor 
Haskell,  of  our  State,  addressed  the  legislature,  I  understand,  upon 
this  guarantee-deposit  bill,  just  a  few  days  ago. 

The  other  bill.  No.  14403,  I  will  not  take  time  to  discusss.  I  would 
like  to  have  done  so;  but  of  course,  I  realize  that  this  committee  is 
undoubtedly  flooded  with  currency  propositions.  I  do  not  get  a  mail 
in  which  some  propositions  are  not  sent  to  me.  I  know  the  same  is 
true  of  the  members  of  this  committee,  and  for  that  reason  I  am 
afraid  that  possibly  they  may  not  consider  all  of  them.  In  fact, 
you  can  not  consider  all  of  them ;  and  that  is  the  reason  why  I  wanted 
to  call  your  attention  to  this  bill.  I  do  not  claim  that  it  is  a  panacea 
for  all  evils.  I  do  not  claim  to  know  all  about  the  money  question. 
I  simply  have  my  views,  and  I  have  had  these  same  views  for  some 
time. 

This  bill,  in  substance,  provides  that  all"  paper  money  that  is  now 
issued  by  the  Government,  including  national-bank  notes,  shall  be 
canceled  and  retired,  and  that  all  paper  money  shall  be  issued  by  the 
Government.  Under  the  provisions  of  this  bill  that  can  be  done  •with- 
out in  any  way  affecting  trade  conditions.  It  also  provides  that  this 
money,  wdiich  I  have  named  ''  national-bond  notes  '" — although  it 
could  be  named  anything,  as  far  as  that  is  concerned — shall  be  legal 
tender  for  all  debts,  public  and  private ;  and  the  credit  of  the  United 
States  is  pledged  to  the  payment  of  that  money.  It  is  also  redeemable 
in  gold  at  the  option  of  the  holder  of  it,  excepting  that  there  is  a  pro- 
vision that  if  at  any  time  the  Treasurer  of  the  United  States  is  con- 
vinced or  has  reason  to  believe  that  a  raid  is  being  made  on  the  Treas- 
ury he  may  redeem  it  in  silver,  and  there  is  provision  for  a  reserve 
fund  of  a  certain  sum.  I  shall  be  pleased  to  have  the  committee  give 
the  bill  consideration,  as  I  have  sufficient  confidence  in  m}'  own  views 
(more  than  I  have  in  my  ability)  to  believe  that  if  I  could  take  the 
time  to  present  it  I  could  show  at  least  some  meritorious  features  in  it. 

Mr.  Burton.  How  much  gold  reserve  do  you  provide  ? 

Mr.  Fulton.  The  total  reserve  is  to  be  not  less  than  eight  hundred 
millions,  60  per  cent  of  it  in  gold  coin  or  bullion  and  40  per  cent  in 
silver ;  and  it  is  to  be  not  less  than  25  per  cent  of  the  total  amount  of 
these  outstanding  notes.  We  have  in  this  country  at  this  time,  my 
recollection  is,  over  $2,000,000,000  in  paper  money  and  currency. 

Mr.  Burton.  ^\niat  is  the  limit  on  the  amount  of  paper  ciu"rency  to 
be  issued  by  the  Government  under  your  bill  ? 

Mr.  Fulton.  There  is  no  limit. 

Mr.  Burton.  And  the  gold  reserve  is  to  be  the  same,  whatever  the 
amount  of  the  paper  currency?  There  is  no  proportion  between  the 
paper  currency  and  the  metallic  reserve? 

Sir.  Fulton.  No;  I  did  not  fix  that,  excepting  that  it  shall  not  be 
less  than  25  per  cent.  I  w^ent  on  the  theory  that  if  you  have  a  cur- 
rency that  is  exactly  as  good  as  gold,  nobody  will  want  gold ;  that  it 
might  as  well  be  tied  up  in  the  Treasure,  for  all  the  good  it  is  doing; 
and  we  have  in  the  Treasurj"  to-day  something  like  eight  hundred 
millions  in  gold  that  is  back  of  these  gold  certificates.  There  is  not 
one  person  in  a  thousand  that  will  go  and  present  a  gold  certificate 
there  to  get  gold.  He  does  not  want  it.  The  only  use  they  would 
have  for  gold  would  simply  be  as  a  protection,  as  a  matter  of  insur- 
ance.   But,  as  I  state,  my  ideas  are  simply  incorporated  in  this  bill.    I 


26  CURRENCY   LEGISLATION. 

do  not  claim  that  it  is  absolutely  perfect,  and  I  do  not  claim  that  it 
states  exacth^  what  I  would  like  to  have ;  and  that  is  the  reason  why 
I  will  not  further  take  up  the  time  of  the  committee  in  discussing  it. 
I  should  like  to  have  explained  it  further,  but  I  find  I  will  have  to 
go;  and  I  thank  the  committee  very  much  for  their  courtesy. 

Mr.  Powers  :  This  is  the  old  greenback  theory,  with  a  gold  reserve 
of  at  least  25  per  cent  behind  it,  is  it  not? 

Mr.  Fulton  :    Oh,  no. 

Mr.  Powers.  That  is  the  way  I  read  section  5. 

Mr.  Fulton.  You  did  not  read  all  of  it,  then.  If  it  does  state 
that,  it  does  not  state  what  I  intended  to  state. 

Mr.  Powers.  There  is  no  limit  on  the  issue,  and  it  is  issued  by  the 
Government. 

Mr.  Fulton.  Yes,  sir. 

Mr.  Powers.  And  3^ou  would  have  a  25  per  cent  gold  reserve. 
"Why,  is  not  that  the  old  greenback  theory — that  it  would  be  issued 
by  the  Government  and  the  Government's  credit  would  be  back  of  it? 

Mr.  Fulton.  The  old  greenback  theory,  if  I  understand  it  at  all, 
was  based  on  the  idea  of  fiat  money  absolutely. 

Mr.  Powers.  "Wliile  this  has  a  25  per  cent  reserve  ? 

Mr.  Fulton.  And  it  is  absolutely  redeemable  in  gold. 

Mr.  PoAVERS.  Yes;  but  you  have  only  25  per  cent  reserve  to  re- 
deem it? 

Mr.  Fulton.  Yes,  sir. 

Mr.  Powers.  And  j^ou  make  it  a  legal  tender  for  all  debts,  public 
and  private? 

Mr.  Fulton.  Yes,  sir. 

Mr.  Powers.  Just  as  the  greenback  was  to  be  ? 

Mr.  Fulton.  Yes,  sir. 

Mr.  Powers.  And  there  is  no  limit  to  the  issue,  as  in  the  case  of 
the  greenback? 

]Mr.  Fulton.  No,  sir. 

Mr.  Powers.  I  can  see  no  particular  distinction  between  that  and 
the  old  greenback  theory,  except  that  25  per  cent  reserve. 

Mr.  Fulton.  The  distinction  is  all  the  difference  in  the  world — that 
the  greenbacks  were  absolutely  pure  fiat  money,  were  not  based  on 
anything,  and  had  no  reserve. 

Mr.  Powers.  I  know;  I  grant  you  your  25  per  cent  gold  reserve. 

Mr.  Fulton.  And  the  gold  reserve  is  just  exactly  on  the  same 
theory  as  the  gold  certificates.  In  other  words,  instead  of  keeping  a 
twenty-dollar  gold  piece  there  for  ever}^  twenty-dollar  bill  that  is 
out,  redeemable  in  gold,  there  is  no  more  necessity  for  our  keeping 
it  than  requiring  a  bank  to  keep  it. 

The  Chairman.  How  would  you  put  that  money  out  of  the  Treas- 
ury of  the  United  States  in  trade  ? 

Mr.  Fulton.  By  loaning  it,  the  bill  provides. 

The  Chairman.  Loaning  it?  How  can  the  Government  loan  its 
money  ? 

Mr.  Fulton.  It  has  done  it. 

The  Chairman.  I  know,  in  times  of  peace;  but  how  would  you 
have  loaned  $500,000,000  this  last  fall?  The  Government  has  no 
relation  to  the  business  of  the  country. 

Mr.  Fulton.  Well,  it  does  do  it ;  and  whether  that  is  a  good  excuse 
or  not,  I  do  not  see  why  it  can  not  do  it. 


CUBRENCY  LEGISLATION.  27 

The  Chairman.  Who  does  it  ? 

Mr.  Fulton.  To  be  sure,  they  do  not  literally  loan  it,  but  they 
deposit  it  around. 

The  Chairman.  That  simply  comes  in  as  a  matter  of  collection; 
but  you  propose  to  have  the  United  States  Treasury,  controlled  by 
such  men  as  we  have  to-day  at  the  head  of  it,  tell  the  people  in 
Washington  and  the  people  down  in  Texas  how  much  money  they 
shall  have. 

Mr.  Fulton.  No. 

The  Chairman.  Who  is  going  to  tell  them  ? 

Mr.  Fulton.  For  this  reason — if  I  am  in  the  banking  business,  I 
am  going  to  tell  them.  If  I  want  to  borrow  $50,000,  I  go  up  to  the 
Treasury  of  the  United  States,  and  I  bring  security  as  provided  for 
in  this  bill,  and  I  borrow  $50,000. 

The  Chairman.  Wliat  kind  of  security  ? 

Mr.  Fulton.  The  security  provided  for  is  Government  bonds.  It 
is  provided  that  the  securities  shall  consist  of  United  States  bonds, 
the  bonds  of  any  State,  county,  city,  or  municipality  of  the  United 
States,  or  the  bonds  of  the  insular  possessions  of  the  United  States, 
provided  that  no  bonds  of  any  municipality  shall  be  accepted  when 
the  amount  thereof  is  less  than  40  per  cent  of  the  assessed  valuation. 

The  Chairman.  Then  of  course  the  bank  will  have  to  take  its  cap- 
ital and  buy  these  bonds  ? 

Mr,  Fulton.  Yes,  sir. 

The  Chairman.  What  margin  do  you  give  on  the  bonds  ?  Suppose 
the  bonds  are  all  right ;  how  much  margin  do  you  give  ? 

Mr.  Fulton.  Sixty  or  75  per  cent ;  I  have  forgotten  what  it  is. 

The  Chairman.  Then  you  think,  do  you,  that  under  your  bill  a 
bank  would  take  a  hundred  thousand  dollars  and  go  down  to  Wash- 
ington and  get  seventy-five  instead  of  getting  back  a  hundred? 

Mr.  Fulton.  Well,  I  do  not  know  about  that  proposition — whether 
it  would  or  not. 

Mr.  Gillespie.  Do  you  limit  your  loans  to  banks,  Mr.  Fulton  ? 

Mr.  Fulton.  Yes,  sir;  I  limit  them  to  banks.  I  am  of  the  opinion, 
however,  that  strictly  speaking  there  is  no  reason  why  it  should  be 
done.  Strictly  speaking,  I  believe  the  loans  should  not  be  limited  to 
banks.  I  believe  that  any  person  who  had  the  right  kind  of  security 
should  be  permitted  to  go  down  and  borrow  this  money  when  he 
wants  it. 

The  Chairman.  Who  is  going  to  pass  on  it  ? 

Mr.  Fulton.  The  Treasurer. 

The  Chair:man.  Let  us  take  the  New  York  City  3^  per  cent  bonds. 
A  few  months  ago  the}^  sold  for  110 ;  now  you  can  buy  them  for  65. 

Mr.  Fulton.  Yes. 

The  Chairman.  We  have  now  16,000  State  banks,  trust  companies, 
and  national  banks ;  and  you  are  going  to  have  one  man  here  pass  on 
those  loans? 

Mr.  Fulton.  Oh,  not  necessarily  one  man.  He  can  employ  men  to 
work  for  him. 

(After  an  informal  discussion  :) 

Mr.  Hayes.  Your  idea,  then,  is  that  you  would  make  of  the  United 
States  Treasury  a  vast  central  bank? 

Mr.  Fulton.  It  would  have  the  appearance  of  a  bank ;  yes,  sir. 

Mr.  Hayes.  Would  it  not  have  the  functions  of  a  bank? 


28  CUERENCY   LEGISLATION. 

Mr.  Fulton.  It  would  have  the  functions  of  a  bank,  save  that  it 
would  not  be  a  bank  of  deposit  excepting  of  the  Government  funds. 
I  am  rather  inclined  to  think,  from  the  study  I  have  given  to  the 
question,  that  we  are  never  going  to  have  the  proper  kind  of  a 
currency  system  here  except  through  a  Government  bank.  But  I 
realize  that  it  would  be  simply  impossible  to  get  such  a  bill  as  that 
through — just  as  impossible  as  it  would  be  to  get  the  Aldrich  bill 
through. 

The  Chairman.  Wliy,  you  have  got  it  right  in  that  bill,  have  you 
not? 

Mr.  Fulton.  The  Aldrich  bill? 

The  Chairman.  Yes ;  that  is  the  Aldrich  bill  exactly,  or  something 
very  near  it. 

Mr.  Fulton.  No  ;  it  is  not  the  Aldrich  bill ;  not  on  your  life. 

The  Chairman.  You  are  simply  getting  the  Government  to  issue 
its  notes  on  the  bonds  at  the  rate  of  75  per  cent  of  their  market  value. 

Mr.  Fulton.  The  Government  issues  all  of  the  money  instead  of 
the  banks  issuing  it. 

The  Chairman.  That  is  what  the  Aldrich  bill  does,  is  it  not  ? 

Mr.  Fulton.  No;  as  I  read  it,  the  banks  issue  the  money.  That 
is,  the  Government  issues  it  the  same  as  it  does  now,  but  the  banks 
take  it,  and  then  they  issue  it. 

The  Chairman.  They  do  not  issue  it;  the  Government  issues  it, 
and  they  distribute  it. 

Mr.  Fulton.  They  issue  it  the  same  as  they  issue  it  now. 

The  Chairman.  Oh,  no. 

Mr.  Fulton,  That  is  the  way  I  have  read  the  bill. 

Mr.  Craavford.  The  notes  are  signed  by  the  treasurer  and  the 
cashier  of  the  bank. 

]Mr.  Fulton.  It  is  just  exactly  the  same  as  it  is  now ;  you  can  say 
that  the  Government  issues  it,  but  it  is  not  issued,  strictly  speaking, 
until  the  bank  officers  sign  it.  That  is  what  issues  it.  The  Govern- 
ment does  not  issue  it. 

I  am  very  sorry  that  my  time  is  so  short.  If  I  had  the  time,  I 
could  make  my  bill  understood,  at  least  in  the  way  that  I  understand 
it ;  but  I  simply  have  to  go  back  to  the  House. 

Mr.  Gillespie.  Did  you  see  the  bill  introduced  in  the  Senate  by 
Senator  Knox  ? 

Mr.  Fulton.  No;  I  have  not. 

Mr.  Gillespie.  It  is  along  the  same  lines  with  yours.  Mr.  Graham 
introduced  it  in  the  House,  and  Mr.  Garland.  According  to  my 
understanding,  it  is  generally  like  yours. 

Mr.  Fulton.  If  the  opinion  of  the  committee  should  be,  after 
thinking  of  this  matter,  that  there  is  any  merit  at  all  in  my  bill,  and 
they  want  to  hear  it  discussed,  I  shall  be  more  than  pleased  to  discuss 
it  when  you  can  give  me  the  time.  It  would  take  me  at  least  half  an 
hour  to  give  my  reasons  for  it. 

Mr.  ]\IcMorran.  ]\Ir.  Fulton,  referring  to  your  bill.  No.  12655,  as 
to  guaranteeing  deposits,  have  you  satisfied  yourself  as  to  why  the 
Government  should  stop  at  guaranteeing  national  bank  deposits? 

Mr.  Fulton.  Wh}^  should  it  stop? 

Mr.  McMoRRAN.  Yes;  AVhy  should  they  stop  at  guaranteeing 
national  bank  deposits?  Why  should  they  not  guarantee  the  railroad 
bonds  of  the  country  ? 


CURRENCY    LEGISLATION.  29 

Mr.  Fulton.  There  is  all  the  difference  in  the  world,  in  my  opinion. 
I  do  not  know  that  I  can  clearly  state  it;  but  a  bank  is  a  public  in- 
stitution in  one  sense  of  the  word.  It  is  connected,  to-day,  with  the 
issuing  of  our  money.  It  is  a  part  of  our  financial  system;  and 
under  our  present  laws  the  prosperity  of  our  country  practically  de- 
pends upon  the  stability  and  the  confidence  which  the  people  have 
in  the  banks.  The  confidence  which  the  people  have  in  railroad  bonds 
does  not  cut  a  great  deal  of  ice  out  in  my  country. 

Mr.  McMoRRAN.  Does  not  the  same  principle  apply  to  the  railroad 
bonds  of  the  countiy  as  to  the  deposits  in  national  banks? 

Mr.  Fulton.  I  can  not  see  it  that  way,  sir. 

Mr.  McMoRRAN.  Are  not  the  railway  bonds  in  very  many  instances 
held  as  investments  by  the  widows  and  orphans  of  our  country  ? 

jNIr.  Fulton.  Oh,  they  buy  all  sorts  of  things;  but  that  is  no  reason 
why  the  Government  should  go  into  it.  If  the  Government  were  con- 
trolling the  railroads  as  it  controls  the  banks,  that  might  be  a  propo- 
sition Avorthy  of  consideration ;  but  the  Government  has  not  anything 
at  all  to  do  with  the  railroads  except  in  the  way  of  regulating  inter- 
state commerce. 

If  there  are  any  other  questions,  I  will  try  to  answer  them.  I  do 
not  want  to  force  my  views  upon  the  committee  at  all.  I  feel  that 
this  committee  is  competent  to  pass  upon  the  kind  of  measures  it 
wants;  and  I  am  further  aware  that  without  doubt  there  is  not  a 
member  of  this  committee  who  is  not  better  posted  on  this  question 
than  I  am.  But  at  the  same  time,  having  these  views,  I  am  willing 
to  give  them  if  they  are  desired ;  and  I  thank  you  for  your  attention. 
I  hope  you  will  not  overlook  that  one  matter  in  regard  to  guarantee- 
ing the  deposits  of  national  banks. 

The  Chairman.  Are  there  any  further  comments  to  be  made  by  any 
gentlemen  to-day  ?    If  not,  we  will  stand  adjourned. 

(The  committee  thereupon  adjourned  until  to-morrow,  Thursdav, 
January  23,  1908,  at  10.30  o'clock  a.  m.) 


Committee  on  Banking  and  Currency, 

House  or  Representati\'es, 
Washington,  D.  C,  Monday,  January  27, 1908. 

The  committee  met  at  10.45  o'clock  a,  m. 

Present:  Representatives  McMorran  (acting  chairman),  Waldo, 
Hayes,  Weeks,  McKinnej^,  Lewis,  Pujo,  Gillespie,  James,  Crawford, 
and  McHenry.  (Representative  Powers  entered  shortly  after  the  be- 
ginning of  the  hearing  and  took  the  chair  as  acting  chairman  at  the 
point  indicated.) 

Present  also,  A.  N.  Jordan,  esq.,  of  New  York. 

The  committee  thereupon  resumed  the  consideration  of  the  various 
measures  before  it  dealing  with  financial  matters. 

STATEMENT  OF  A.  N.  JORDAN,  ESQ.,  OF  NEW  YORK. 

Mr.  Jordan.  Mr.  Chairman  and  gentlemen,  I  am  not  personally 
interested  in  this  question,  as  I  am  not  connected  with  any  bank,  but 
I  have  come  here  in  the  interests  of  the  public,  as  a  student  of  the 
problem.  My  studies  date  from  1902,  when  I  took  up  the  subject  at 
the  request  of  Mr.  Conrad  N.  Jordan,  who  was  a  banker,  had  been 
formerly  Treasurer  of  the  United  States,  and  was  interested  in 
finance  and  currency.  I  am  appearing  here  at  the  request  of  Mr. 
Williams,  the  minority  leader.  I  have  had  some  correspondence  with 
him,  and  he  thought  it  worth  while  to  bring  the  facts  I  had  to  the  at- 
tention of  the  committee. 

In  the  present  discussion  of  asset  currency  some  elements  have  been 
omitted,  and  I  take  the  liberty  of  presenting  a  few  facts  and  sugges- 
tions, in  the  belief  that  they  may  be  of  use  to  your  committee  in 
clearing  up  the  matter.  These  facts  are  based  on  United  States  Gov- 
ernment reports,  letters,  and  returns  from  foreign  banks,  and  upon 
newspaper  clippings. 

Bankers  claim  that  our  national  bank  notes  do  not  contract  or 
expand  with  the  needs  of  business;  that  our  currency  is  not  elastic 
enough  to  meet  the  demands.  The  advocates  of  emergency  currency 
claim  that  the  business  of  the  country  is  too  elastic;  that  the  cry  for 
more  currency  is  only  heard  when  the  country  is  overtrading  and 
speculating  excessive!}^ :  and  that  promoters  have  undertaken  more 
new  enterprises  than  the  efficiency  or  capacity  of  labor,  material 
supplies,  and  capital  warrant. 

That  is,  these  promoters  are  trying  to  do  more  than  it  is  possible 
to  do  within  the  given  time.  They  have  gone  beyond  reasonable 
enterprise.  I  believe  that  if  the  ability  to  issue  cheap  credit  exists 
during  such  a  period,  it  will  be  used.  Therefore,  more  enterprises 
will  be  undertaken  and  thus  more  capital  absorbed,  when  the  de- 

30 


CURRENCY    LEGISLATION.  ,  31 

mands  for  it  are  already  too  great.  This  will  be  caused  by  the  fact 
that  credit,  ability  to  borrow  capital,  can  be  obtained  so  cheaph^ 

Remedies  have  been  suggested.  The  supporters  of  the  asset  cur- 
rency plan  suggest  that  our  national  banks  shall  be  allowed  to  issue 
notes  secured  by  the  general  assets  of  the  bank  and  thus  be  enabled 
to  meet  the  demands  of  business. 

The  emergency  theory  is  that  as  the  country  is  undertaking  more 
business  than  it  can  possibly  perform,  indicated  by  high  rates  of  in- 
terest, increasing  output  of  new  securities  and  high  prices  for  mater- 
ials and  scarcity  of  labor,  we  must  stop  expanding  credit  for  new  en- 
terprises. We  should  pay  off  some  of  our  indebtedness.  Therefore 
more  credit  should  be  supplied  only  under  such  rates  of  interest  as 
will  be  unprofitable  to  use  this  increased  credit  except  as  a  means  of 
preventing  forced,  and  consequently  disastrous,  liquidation.  The 
country  would  then  be  able  to  slow  down  gradually. 

We  have  a  notable  modern  example  of  a  flexible  currency.  Tho 
Germans  invented  it.  I  might  say,  briefly,  that  the  Bank  of  Ger- 
many is  allowed  to  issue  notes  to  the  extent  of  three  times  the  cash  it 
has  in  its  vaults.  These  notes  are  duty  free  up  to  a  sum  equal  to 
the  amount  of  cash  plus  a  "  contingent  fund  "  of  472,829,000  marks. 
I  use  the  term  cash  in  the  sense  of  coin  and  bullion.  Beyond  that 
limit  they  are  allowed  to  issue  notes  subject  to  a  payment  of  a  5  per 
cent  tax.  The  bank  has  to  keep  a  metallic  reserve  in  gold,  silver,  and 
govei'nment  notes  of  one-third  against  its  own  notes  and  other  public 
liabilities,  the  reserve  being  required  against  the  notes  whether  they 
are  subject  to  a  tax  or  not. 

Has  this  been  a  success?  From  the  first  flexible  issue  it  has  never 
come  back.  It  has  gone  on  increasing.  The  duty-free  limit  has  been 
extended  until  it  now  amounts  to  472,829,000  marks.  To-day  the 
Germans  are  demanding  a  further  increase  and  are  issuing  notes  in 
denominations  below  100  marks.  In  their  original  system  they  were 
allowed  to  issue  notes  of  1,000,  500,  and  100  marks,  but  they  find  that 
by  issuing  them  in  lower  denominations,  50  and  20  marks,  the  notes 
will  stay  out  longer  in  circulation.  This  system  landed  the  German 
nation  in  the  mire  in  1901,  and  has  drawn  it  back  again  to-day. 

Germany  had  a  big  industrial  depression  in  1901,  and  to-day  she  is 
entering  upon  another.  I  quote  from  the  financial  supplement  of  the 
New  York  Evening  Post,  Saturday,  January  25,  1908 : 

In  Germany,  however,  a  setback  in  trade  is  uuniistakably  under  way,  espe- 
cially in  the  iron  and  steel  industry. 

Does  anyone  suppose  that  because  a  currency  is  issued  only  under 
a  5  per  cent  penalty,  or  less,  that  the  man  who  thinks  he  is  making  20 
per  cent  (on  paper)  will  be  restrained  by  a  trifling  thing  like  that? 
In  other  words,  if  a  bank  has  only  to  pay  a  penalty  of  a  5  per  cent 
tax  on  its  circulation,  and  if  it  is  getting  5  per  cent  or  more  on  the 
rest  of  its  credit,  it  is  not  going  to  be  restrained  from  issuing  this 
new  currency  on  account  of  the  tax  of  5  per  cent. 

Bear  in  mind  that  every  borrower  from  a  bank  is  paying  the  rate 
the  borrower  from  the  5  per  cent  fund  pays,  and  that  the  increased 
rate  becomes  necessarily  the  universal  rate,  as  the  distinction  as  to 
who  is  the  borrower  of  the  specific  fund  becomes  impossible.  The 
returns  of  the  bank  will  witness  how  often  the  note  issue  has  fallen 
within  the  normal  limit.  This  system  has  cost  the  German  people 
millions  of  dollars  and  will  continue  to  cost  until  it  is  done  away 


32  CUERENCY   LEGISLATION. 

with.  If  the  Germans  had  adopted  the  Engiish  or  French  systems, 
and  when  excessive  speculation  and  overtrading  began  had  run  up 
against  a  12  per  cent  rate  for  money  instead  of  issuing  flexible  cur- 
rency, they  would  have  saved  a  great  deal  of  money  that  has  been 
lost  in  unsuccessful  ventures  undertaken  during  the  periods  of  infla- 
tion. 

As  proof  of  this  I  would  like  to  read  an  extract  from  United  States 
Government  report  as  to  the  industrial  depression  which  took  place 
in  Germany  during  1900  and  1901. 

This  is  from  the  consulate-general  at  Berlin.  Frank  H.']Mason,  and 
is  dated  October.  1901.  volume  2.  Commercial  Relations  of  the  United 
States,  1901.     At  page  251  it  states: 

Altboiiiih  the  year  1000  will  be  remembered  as  the  one  during  which  Ger- 
many passed  the  culminating  point  of  a  period  of  phenomenal  development,  and 
entered  upon  a  period  of  reaction  and  depression,  the  duration  of  which  can 
not  yet  be  foretold,  no  trace  of  decline  was  apparent  in  the  foreign  commerce 
of  the  year. 

And  at  page  259  of  the  same  report : 

It  is  generally  conceded  that  the  climax,  or  high  tide  of  German  prosperity, 
was  reached  during  the  spring  months  of  1900.  *  *  *  The  clouds,  which 
had  been  gathering  for  several  months,  burst,  and  rapidly  overspread  the  sky. 
During  the  summer  business  became  more  and  more  stagnant  and  depressed, 
and  the  autumn  failed  to  bring  any  sign  of  revival.  Capitalists  became  timid 
and  apprehensive:  factories  and  industrial  establishments  of  most  kinds  began 
to  discharge  employees  and  to  shorten  the  working  hours  of  those  who  were 
I'etained;  industrial  stocks  declined  in  value  out  of  all  proportion  to  the  fall- 
ing off  of  business,  and  by  the  end  of  November  Germany  was  facing  an  eco- 
nomic crisis  the  extent  and  duration  of  which  could  be  but  dimly  perceived. 
By  the  middle  of  January  fifteen  branches  of  industry  in  Berlin,  which  employed 
in  normal  times  83,319  operatives,  had  discharged  22,629  men  for  want  of  work. 
Even  the  great  steel  works  of  Frederick  Krupp,  at  Essen,  turned  adrift  sevei'al 
thousand  of  their  employees,  and  the  Berlin  Tageblatt  estimated  that  one-fourth 
of  all  the  working  people  of  Germany  were  idle  or  insufficiently  employed. 
Spring  came,  the  war  in  China  was  over,  but  the  hoped-for  revival  did  not 
come.  The  depression  continued  until  on  the  25th  of  June  last  occurred  the 
failure  of  the  Leipziger  Bank,  one  of  the  first  and  worst  of  a  long  series  of  fail- 
ures and  suspensions  of  moneyed  institutions  which  had  been  the  mainstay  and 
support  of  thousands  of  maniifacturing,  mining,  building,  and  inventive  enter- 
prises that  had  helped  to  make  the  prosperity  of  Germany.  *  *  *  Trade, 
mining,  and  manufacture  got  into  the  hands  of  powerful  syndicates,  which  were 
very  effective  so  long  as  everything  was  prosperous  and  on  the  up-grade,  but, 
as  is  now  claimed,  behaved  badly  by  keeping  up  prices  of  coal,  coke,  and  other 
staple  necessities  when  the  reaction  had  come  and  everyone  needed  cheap  fuel 
and  raw  materials  to  enable  them  to  weather  the  storm.  jNIoreover,  many  of 
the  selling  syndicates  maintaine;!  their  home  prices  unchanged,  while  pouring 
their  suri)lus  products  into  foreign  markets  at  whatever  prices  they  could  get. 
As  a  result  of  all  this,  there  is  a  general  complaint  that  despite  dull  times,  low 
wages,  and  gi'owing  scarcity  of  employment,  the  cost  of  home-grown  products 
and  German-made  goods  has  remained  practically  unchanged. 

This  is  from  Dresden,  quoting  from  the  same  volume,  reported  by 


the  consul  there : 


The  anticipation  of  a  continued  era  of  pVosperity,  as  expressed  in  the  last 
annual  report  of  the  Dresden  Chamber  of  Commerce,  has  not  been  realized,  and 
at  present  this  portion  of  Saxony  is  suffering  from  depression  and  dull  times 
in  its  connnercial  and  manufacturing  interests.  The  earlier  months  of  the  pres- 
ent year  seemed  to  justify  optimistic  predictions,  but  later  an  extremely  strin- 
gent money  market  prevailed,  followed  by  failures  of  manufacturing  establish- 
ments and  banks,  from  which  it  will  take  the  Kingdom  several  years  to  recover. 

These  conditions  were  brought  about  by  overspeculation,  resulting  from  five 
years  of  prosperity,  and  by  the  building  of  many  new  manufacturing  plants 


CURRENCY    LEGISLATION.  ?3 

and  increasing  the  facilities  of  otlievs  already  in  operation,  wlii<-h  caused  a  pro- 
duction greatly  in  excess  of  the  demand. 

This  is  from  Leipzig,  in  regard  to  the  fnihire  of  tlie  Leipziger 
Bank,  of  which  I  have  spoken. 

The  largest  failure  this  year — in  fact,  one  of  the  largest  ever  known — was 
that  of  the  Leipziger  Bank,  an  institution  which  was  regarded  by  the  general 
public  as  one  of  the  best  and  safest  of  its  kind  in  Germany.  This  bank  closed 
its  doors  June  25,  IDOl.  The  directors,  the  recipients  of  large  salaries,  were 
among  the  most  prominent  men  in  this  section.  Since  the  bank  closed  its  doors 
two  of  the  seven  directors,  the  manager  and  his  assistant,  have  been  arrested 
and  are  now  in  jail,  one  is  out  on  bail,  one  has  committed  suicide,  and  the 
other  three  are  under  police  supervision  pending  the  hearing  of  the  case. 

Mr.  Lewis.  I  would  suggest  that  instead  of  reading  so  much  his- 
tory that  you  just  give  us  your  views  in  as  concentrated  form  as 
possible. 

Mr.  Jordan.  These  are  merel}^  extracts  from  the  report  of  the 
United  States  consul  at  Berlin  in  regard  to  the  depression  that  took 
place,  and  I  desire  to  present  them  as  showing  the  experiences  of 
the  German  nation  under  flexible  currency.  Experience  is  the  only 
true  guide  of  a  banker.  The  returns  of  the  Bank  of  Germany  at  that 
time  showed  that  from  1890  to  1900  its  flexible  currency  issue  was 
constantly  expanding;  and  that,  although  it  fluctuated  from  time  to 
time,  the  3'early  average  always  showed  a  greater  increase  in  per- 
centage in  the  notes  than  in  the  reserve  held  against  the  notes.  For 
instance,  in  1888,  the  metal  held  by  the  bank  against  notes  amounted 
to  96  per  cent  of  the  notes  and ■ 

Mr.  Gillespie.  That  was  in  1888  ? 

Mr.  Jordan.  Yes.  In  1898  and  1899  that  average  dropped  down 
to  72  per  cent.  That  was  at  the  time  this  period  of  overtrading  and 
excessive  speculation  was  taking  place,  and  it  had  been  brought  about 
by  this  very  increase  in  the  expansion  of  the  note  issues  of  the  bank. 
The  German  people  had  been  led  into  it  by  being  afforded  cheap 
credits.  Instead  of  running  up  against  a  high-money  rate,  they  ran 
up  against  the  issue  of  flexible  currency,  which  led  them  into  this 
ver}^  overtrading  and  speculation,  because  it  produced  fictitious  ease. 

Mr.  Waldo.  Do  I  understand  that  you  call  it  overissue  and  flexible 
currency  where  the  people  kept  96  per  cent  of  gold  against  it  ? 

Mr.  Jordan.  At  the  time  the  bank  kept  96  per  cent,  in  1888;  it 
was  hardly  a  flexible  issue.  It  did  not  begin  to  expand  until  after 
that.    Then  the  reserve  dropped  down  to  71  per  cent. 

Mr.  Waldo.  Is  it  not  the  opinion  of  the  authorities  generally  that 
25  per  cent  of  gold  is  ample  for  the  redemption  of  all  notes  in  any 
currency  ? 

Mr.  Jordan.  It  makes  the  currency  safe  as  far  as  safety  goes,  pro- 
vided the  other  75  per  cent  is  issued  against  available  resources.  It 
has  a  bad  economic  effect  on  the  country.  It  is  unsound  if  it  reduces 
the  rate  of  interest  during  a  period  of  speculative  growth. 

Mr.  Waldo.  Do  you  imagine  that  it  would  make  a  great  deal  of 
difference  whether  you  had  96  per  cent  of  gold  in  circulation  or 
whether  3'ou  had  100  per  cent  in  the  Treasury  ? 

Mr.  Jordan.  Yes,  sir ;  because  in  the  one  case  you  have  got  to  have 

capital  if  you  are  issuing  these  notes  against  the  gold.     In  the  oth?r 

case  it  does  not  require  any  creation  of  capital  at  all.    It  is  simply  a 

credit  note  that  is  issued,  and  therefore  you  are  allowing  this  note 

37381—08 3* 


34  CURRENCY   LEGISLATION. 

to  be  ispued,  which  is  a  means  of  borrowing-  capital.  If  you  can 
issue  the  note  under  a  low  rate  there  is  not  much  hindrance  to  bor- 
rowing capital. 

Mr.  Waldo.  Is  it  then  your  idea  that  the  credits  of  this  country, 
now  amounting  to  about  fifteen  billions,  ought  not  to  be  used,  and 
that  the  only  mone}'  that  ought  to  be  used  here  is  about  seven  hun- 
dred millions  of  gold  ? 

Mr.  Jordan.  Xo,  sir.  My  idea  is  that  the  credit  of  this  country 
is  furnished  principally  by  bank-deposit  credits.  They  are  largelj'^ 
the  exchange  medium  of  the  countr3^ 

Mr.  Waldo.  I  do  not  mean  as  to  the  actual  fact,  but  for  safe 
financiering. 

Mr.  Jordan.  No.  sir;  not  gold  only,  but  there  should  be  a  limit  to 
the  amount  of  currenc}'  issued  other  than  against  gold. 

Mr.  Waldo.  Is  it  your  idea  that  no  other  currency  ought  to  be  in 
existence  than  that  Avhich  represents  actual  gold  on  deposit  in  banks 
or  in  the  United  States  Treasury  ? 

Mr.  Jordan.  To  the  extent  that  it  would  check  speculation,  yes. 
I  believe  that  the  only  currency  that  should  be  issued  should  be 
against  gold,  or  against  United  States  Government  bonds;  that  suffi- 
cient credit  is  obtained  from  deposits  to  carry  on  the  business  of  the 
country,  and  that  our  circulation,  which  goes  into  the  hands  of  the 
common  people,  ought  to  be  secured  absolutely ;  that  we  are  rich  and 
strong  enough  to  furnish  a  circulation  which  contains  no  element  of 
insecurity. 

If  the  standard  of  value,  gold,  is  increasing  more  rapidly  than  the 
demand  for  it  in  circulation,  or  as  reserves  of  bank  credits  issued 
against  value,  the  excess  gold  will  seek  a  market  and  thus  cause  a 
depreciation  in  the  purchasing  power  of  gold,  or  what  is  commonly 
called  a  rise  in  prices.  This  rise  in  prices  will  stimulate  speculation, 
or  the  holding  of  commodities  and  securities  for  a  sale  at  advancing 
prices  rather  than  a  distribution  of  them  to  consumers  or  investors. 
The  increase  in  prices  will  absorb  more  gold  in  circulation  under  a 
gold  currenc}'  and  hence  check  the  effect  of  the  overproduction  of 
gold.  The  inflation  will  then  be  held  within  bounds.  A  gold  cur- 
rency system  tends  to  keep  speculation  down  and  therefore  to  make 
the  purchasing  power  of  our  gold  dollar  more  stable. 

Mr.  Gillespie.  What  was  their  reserve  when  the  panic  came  in 
Germany  ? 

]\Ir.  Jordan.  When  the  panic  came,  their  reserve  had  dropped  to 
72  per  cent. 

Mr.  Gillespie.  Was  that  in  1901  ? 

Mr.  Jordan.  That  was  in  1900.  The  conditions  causing  the  f)anic 
came  about  in  1900.  The  panic  actually  came  in  1901,  but  the  Ger- 
mans had  been  led  into  that  panic  by  their  flexible  issue,  because  it 
produced  a  cheap  money  rate — a  cheap  credit  rate.  To-day  the  re- 
turns of  the  bank  show  that  it  had  been  constantly  expanding  for  two 
or  three  years,  and  Germany  is  again  in  a  period  of  depression.  She 
has  just  entered  it,  being  led  into  overspeculation  by  this  very  flexible 
currency  system,  because  it  has  allowed  low  rates  of  interest.  I  con- 
tend that  you  can  not  check  speculation  except  by  high  rates. 

Mr.  Gillespie.  You  do  not  contend  that  the  Germany  currency 
system  or  financial  system  is  not  sound,  do  you? 


CURRENCY   LEGISLATION.  35 

Mr.  Jordan.  No,  sir;  not  for  a  moment,  if  you  mean  in  the  sense 
of  not  being  safe. 

Mr.  Gillespie.  None  of  their  notes  have  ever  gone  to  discount. 

Mr.  Jordan.  No,  sir. 

Mr.  Gillespie.  But  your  contention  is  that  under  that  system  we 
can  not  prevent  this  tendency  to  overtrading,  etc.    Is  that  it  ? 

Mr.  Jordan.  JNIy  contention  is  that  under  this  system  you  tend  to 
bring  about  and  prohjng  these  periods  of  overspeculation ;  that  it  is 
not  unsound  currency,  that  the  notes  do  not  go  to  discount,  but  that 
you  lead  the  country  to  overspecuhition. 

Mr.  Weeks.  Is  it  not  true  that  Germany  has  been  developing  com- 
mercially more  than  any  country  in  the  world? 

Mr.  Jordan.  It  is  true  that  she  has  developed  very  rapidly  since 
1890,  but  that  is  the  very  thing  that  landed  her  in  "the  slough  of 
despond  "  in  1901  and  from  which  she  has  not  been  able  to  crawl  out, 
nor  will  not  until  her  currency  system  is  done  away  with.  The  in- 
creasing output  of  gold  did  not  commence  until  about  1892. 

Mr.  Weeks.  It  is  inevitable,  is  it  not,  when  a  country  is  developing, 
that  it  shall  have  periods  of  depression  and  recession  ? 

Mr.  Jordan.  It  is,  if  you  allow  it  to  go  too  fast.  A  distinction 
between  the  German  flexible  system  and  the  English  system  is  that 
in  Egland  w^hen  you  go  too  fast  you  run  up  against  a  high  rate 
for  money.  If  you  run  up  against  a  low  rate  you  w^ould  merely  con- 
tinue the  speculation. 

Mr.  Waldo.  Do  you  know  what  the  rate  for  money  in  Germany 
is  to-day  ? 

Mr.  Jordan.  I  do  not  know  it  now,  but  the  rate  has  been  reduced 
since  tlie  1st  of  January  from  T|  per  cent. 

Mr.  Waldo.  I  mean  at  the  time  when  you  say  the  rate  w^as  too  low. 

Mr.  Jordan.  The  average  rate  for  bills  of  exchange— well,  the 
highest  rate  was  only  5  per  cent  from  1888  down  to  even  1905,  for 
which  I  have  the  data  here. 

Mr.  Pujo.  Your  contention  is  that  it  increases  speculation  by  flexi- 
bility and  elasticity  of  currency,  resulting  in  inflation? 

Mr.  Jordan.  Yes. 

Mr.  Pujo.  Is  it  not  a  fact  that  the  rate  in  France  for  the  last  forty 
years  has  been  4  per  cent  ? 

Mr.  Jordan.  I  think  so  as  regards  the  bank  rate ;  but  as  regards  the 
market  rate  I  do  not  think  it  is  true.  The  rates  fluctuate.  I  noticed 
it  was  9  per  cent  at  one  time  last  fall.  They  do  not  have  a  flexible 
system,  in  my  opinion. 

Mr.  Pujo.  But  I  am  speaking  of  the  rate  of  the  Bank  of  France. 

Mr.  Jordan.  It  varies  from  3  per  cent  to  4  per  cent. 

Mr.  Pujo.  Three  per  cent  and  a  fraction. 

Mr.  Jordan.  The  Bank  of  France  does  this:  If  it  sees  speculation 
breaking  out,  it  will  raise  the  discount  rates  and  try  to  hold  down 
that  speculation.  It  will  keep  overspeculation  in  check,  if  possible. 
It  keeps  a  reserve  of  probably  75  per  cent  to  85  per  cent  against  its 
notes  and  other  public  liabilities. 

Mr.  Pujo.  What  system  do  you  consider  the  safe  system,  then? 

Mr,  Jordan.  I  consider  that  our  United  States  Government  bond- 
secured  currency  as  at  present  issued  and  currency  issued  against 
gold,  dollar  for  dollar,  is  the  safest  and  most  economic  svstem  for  us. 


36  CURRENCY    LEGISLATION. 

Mr.  Pujo.  At  this  time  do  you  recall  what  the  circulation  is  that  is 
authorized  in  the  United  States? 

Mr.  JoRDAX.  An  amount  equal  to  the  capital  of  our  national  banks, 
or  about  $900,000,000. 

Mr.  Pujo.  We  could  take  out  $900,000,000  of  this  circulation  ? 

Mr.  Jordan.  Yes. 

Mr.  Pujo.  We  have  in  circulation  now  $600,000,000  of  national- 
bank  currency ;  $900,000,000  could  be  taken  out.  Senator  Aldrich  in- 
troduced a  bill  vi'aising  the  authorized  issue  $250,000,000  more.  It  is 
evident  that  one-third  of  the  circulation  authorized  by  law  has  not 
been  taken  out  by  national  banks.  It  has  been  argued  b}'  some  banks 
that  the  reason  they  will  not  take  out  the  circulation  is  because  they 
can  not  retire  it  when  they  have  no  need  for  it.  If  we  would  remove 
the  limitation  of  $9,000,000  a  month  as  regards  retirement,  would  not 
that  encourage  the  bank  to  take  out  $300,000,000,  and  would  not  that 
be  the  onl}^  legislation  necessarv  if  the  currency  is  safely  secured  by 
Government  bonds? 

]Mr.  Jordan.  I  think  the  removal  of  the  $9,000,000  retirement  limit 
is  very  advisable,  because  the  banks  will  not  take  out  circulation  when 
it  is  needed  if  they  can  not  retire  it  when  the  demand  for  it  is  over. 

Mr.  Pujo.  I  call  your  attention  to  the  Bank  of  North  America, 
which,  I  notice  in  the  New  York  World  of  the  27th  instant,  has  just 
gone  into  the  hands  of  a  receiver.    Its  capital  is  $2,000,000. 

Mr.  Jordan.  Yes. 

Mr.  Pujo.  Its  circulation  taken  out  is  only  $50,000.  Does  not  that 
argue  in  support  of  the  necessity  of  removing  the  limitation  of 
$9,000,000? 

Mr.  Jordan.  I  think  it  does  to  the  extent  that  banks  will  not  take 
out  circulation  if  they  can  not  retire  it. 

Mr.  Weeks.  Is  it  not  true  that  there  has  been  practically  a  run  on 
the  National  Bank  of  North  America,  of  New  York,  for  the  last  three 
months,  and  that  they  have  been  struggling  to  keep  their  heads  above 
water,  and  that  they  have  outstanding  $4,000,000  of  certificates? 

Mr.  Jordan.  I  do  not  know  the  exact  situation,  but  I  understand 
that  they  have  been  under  suspicion  for  some  time  and  have  been 
held  over. 

Mr.  Weeks.  If  you  were  a  national-bank  man,  would  you  be  will- 
ing to  buy  2  per  cent  bonds  at  the  rate  of  107  or  109  to  take  out  cir- 
culation against  them,  considering  the  profit  that  can  be  made  on 
circulation  at  present? 

Mr.  Jordan.  That  would  depend  on  interest  rates  and  to  the  ex- 
tent that  it  would  furnish  convenience  to  my  depositors. 

Mr.  Weeks.  Yes ;  but  it  might  be  a  glut  on  your  hands. 

Mr.  Jordan.  If  there  were  no  demand  for  notes  it  would  not  pay 
at  107  to  109.  The  very  fact  that  you  can  issue  currency  and  convert 
deposits  into  currency  would  bring  you  deposits  as  you  serve  the  con- 
venience of  your  customers. 

Mr.  Weeks.  Suppose  you  bought  bonds  and  paid  108  for  them  and 
.something  happened,  as  it  did  last  fall,  and  they  dropped  to  102  and 
you  wanted  to  retire  the  currency?  Do  you  think  you  are  justified 
in  risking  that  G  per  cent? 

Mr.  Jordan.  I  think  that  is  the  risk  of  your  business  and  you  would 
be  more  than  repaid  by  being  of  service  to  your  depositors. 


CURRENCY   LEGISLATION.  37 

Mr.  Weeks.  If  you  were  in  a  responsible  position,  you  would  hesi- 
tate about  taking  that  risk. 

JNIr.  Jordan.  Banks  speculate  in  bonds  and  the  prices  for  bonds 
go  up  artificially ;  but  it  seems  to  nie  that  it  would  be  better  for  them 
to  speculate  in  United  States  Government  bonds  and  take  that  risk, 
rather  than  to  take  the  risk  of  speculating  in  some  other  security. 

Mr.  Weeks.  I  agree  with  you  there. 

Mr.  McHeisry.  Suppose  you  have  a  bank  with  $500,000  capital. 
You  can  have  $200,000  United  States  bonds,  $200,000  for  currency 
outstanding.  Now,  suppose  you  Avant  to  increase  the  ratio  to  $500,000. 
What  are  you  going  to  buy  those  Government  bonds  with  ?  In  what 
way  does  it  give  you  more  currency? 

Mr.  Jordan.  The  only  way  is  if  you  have  credit  power  to  purchase 
them  with,  you  can  extend  your  credit  and  purchase  those  bonds  with 
it,  or  you  may  borrow  them.  You  have  that  advantage.  If  you  can 
not  do  so  and  have  to  pay  out  lawful  money  for  them,  you  would 
lose.  It  is  simply  a  question  of  wdiether  you  have  sufficient  credit 
to  buy  those  bonds,  or  otherwise  3'ou  would  have  to  call  loans. 

Mr.  McHenry.  That  is  the  reason  banks  do  not  take  out  the  money, 
simply  because  they  have  to  put  up  good  money  to  get  this  currency. 

Mr.  Jordan.  That  would  prevent  inflation  of  the  currency.  There 
is  another  flexible  currency  system  very  much  like  Germany's,  and 
I  wish  to  mention  that  system.  This  is  an  extract  from  a  short  article 
which  appeared  in  the  Jouriml  of  Commerce  and  Commercial  Bulle- 
tin Inst  year: 

Berlin,  July  21,  1907. 

A  corrosi)oiideut  of  the  Fraiikfurtor  Zoituug,  writing  from  Tokyo,  gives 
details  of  tlie  speculative  establisliineiit  of  new  iiulnstries  since  the  close  of 
the  war  with  Russia.  From  July,  1905,  to  the  end  of  1003  there  \Aere  organ- 
ized 3,330  new  companies,  with  an  aggregate  capital  of  $302,! '00,000,  while 
580  old  companies  added  $123,000,000  to  their  capital.  This  niovonient  went 
on  with  increased  intensity  for  the  first  five  months  of  this  year,  during  which 
1,1G0  new  companies,  having  a  total  capital  of  $112,000,000,  were  registered, 
while  249  old  companies  absorbed  $03,000,000  of  new  capital. 

This  excessive  activity  in  establishing  new  companies  has  been  accompanied 
by  a  wave  of  enormous  speculation,  all  classes  of  the  peo);lo,  even  down  to  the 
poorest,  have  been  engaged  in  buying  stocks  upon  margii;.  Instead  of  the 
hoped-for  advance  in  prices,  however,  a  sharp  fall  has  latterly  occurred,  and 
a  feeling  of  distrust  among  the  people  has  become  so  marlvcd  that  various  runs 
on  banks  have  occurred.  Some  thirteen  banks  were  forced  to  suspend  paj^- 
ment,  either  temporarily  or  permanentl3^ 

That  simply  goes  to  show  that  under  those  systems 

Mr.  Gillespie.  What  is  that  syslem  ? 

Mr.  Jordan.  I  refer  to  the  »Tapanese  system.  The  flexible  cur- 
rency system  there  is  modeled  after  that  of  Germany.  After  tlie 
Bank  of  Japan  issues  notes  up  to  the  limit  of  cash  it  is  allowed  to 
issue  120,000,000  yen,  or  about  $50,000,000.  and  then  is  permitted 
to  further  issue  under  such  tax  as  is  placed  by  the  minister  of  finance 
of  Japan.  The  tax  must  be  5  per  cent  or  morff.  Under  both  sys- 
tems I  have  shown  that  these  periods  of  overspeculation  and  exces- 
sive development  of  new  enterprises  have  taken  place. 

Mr.  Waldo.  Do  you  know  what  issue  per  capita  was  made  at  that 
time  in  Japan — at  the  time  of  greatest  expansion  ? 

Mr.  Jordan.  No,  sir.  The  report  of  the  bank  does  not  show.  I 
have  written  to  Japan  for  further  information,  but  have  received 
no  answer  as  yet. 


38  CURRENCY   LEGISLATION. 

;Mr.  Waldo.  Do  you  know  what  the  issue  per  capita  Avas  in  Ger- 
many at  the  time  you  say  this  overspeculation  came  about? 

Mr.  Jordan.  Xo,  sir.  I  do  not  Imow  that,  but  I  do  not  think 
that  the  per  capita  amount  in  circulation  has  as  much  to  do  with  its 
use  in  business  as  its  rapidity  of  circuLation. 

'Mr.  Gillespie.  You  have  the  outstanding  note  issue,  have  you  not? 

Mr.  Jordan.  Yes,  sir-;  I  have. 

Mr.  Waldo.  ^Yhsit  is  that? 

Mr.  Jordan.  The  average  outstanding  note  issue  for  the  vear  1902 
was  1.229.623.000. 

Mr.  Gillespie.  Marks  ? 

Mr.  Jordan.  That  was  marks.  The  issues  have  never  been  as  large 
as  those  of  the  1st  of  January.  1908.  I  have  a  letter  from  the  bank 
showing  the  issue  to  have  been  on  the  1st  of  October,  1907, 
1,617,034.000  marks.  It  shows  a  constant  increase.  There  may 
be  fluctuations  from  month  to  month,  but  during  these  periods  of 
speculation  this  increase  is  going  on.  It  is  really  a  question  of  more 
all  the  time. 

Mr.  Waldo.  Is  not  that,  perhaps,  in  ratio  with  the  increase  of 
wealth  in  that  country? 

Mr.  Jordan.  If  it  were  in  ratio  with  the  increase  of  real  wealth 
there  would  not  be  any  trouble  from  this  overspeculation.  I  think 
it  is  more  in  ratio  with  the  increase  in  speculation. 

Mr.  Waldo.  Have  you  any  memorandum  there  as  to  what  the 
actual  increase  of  wealth  was  during  that  time? 

Mr.  Jordan.  Ko,  sir ;  I  have  not.  I  have  simply  a  memorandum 
that  the  country  is  now  in  a  period  of  depression,  which  indicates  that 
its  wealth  could  not  have  increased  soundly.  It  was  more  an  anticipa- 
tion of  actual  value. 

Mr.  Weeks.  Have  you  any  information  as  to  the  relative  volume  of 
business  in  the  last  two  years  j^ou  are  referring  to  ? 

Mr.  Jordan.  Xo  ;  I  have  nothing  in  regard  to  that.  It  was  very 
active,  as  indicated  by  imports  and  exports.  I  am  able  to  show  only 
the  expansion  of  notes. 

Mr.  Weeks.  Do  you  imagine  the  currency  output  has  increased 
any  more  rapidly  than  the  volume  of  business  has? 

iSIr.  Jordan.  It  has  not  increased  any  more  rapidly  than  business, 
but  it  lias  increased  more  rapidly  than  the  sound  growth  of  the 
country,  otherwise  there  would  not  have  been  this  period  of  depres- 
sion. 

Mr.  Waldo.  What  is  your  opinion  as  to  the  gradual  recurrent 
periods  of  depression  in  all  countries  where  there  is  great  increase  in 
manufactures  and  lousiness  of  various  kinds,  under  any  system  of 
currency  ? 

^fr.  Jordan.  I  believe  that  under  certain  conditions  these  things 
always  arise,  that  »  period  of  cheap  money  tends  to  increase  business 
activity,  and  the  increased  business  activity  finally  leads  to  over- 
speculation. 

^Ir.  Weeks,  ^y\\\  not  thi!t  always  be  so  without  regard  to  the 
currency? 

Mr.  Jordan.  This  will  always  take  place  after  a  speculative  con- 
sumption of  capital,  but  in  some  countries  you  would  have  it  to  a 
greater  extent  than  in  others,  owing  to  the  cu.rrency  system. 


CURRENCY   LEGISLATION.  39 

Mr.  Gillespie.  Ts  it  not  true  tlint  Japan  fir^t  started  out  when  she 
inaugurated  a  banking-  system  with  a  system  modeled  on  our  present 
national  banking  system  and  afterwards  changed  to  the  Geraian 
system  ? 

Mr.  Jordan.  She  did.  T  understand  that  Congressman  Fowler 
remarked  that  Japan  had  a  bond-secured  currency  and  that  she 
abandoned  it  and  took  up  the  flexible  currency  system  because  the 
former  had  not  worked  Avell  there.  Under  this  ^'erv  flexible  currency 
system  she  experienced  a  panic,  runs  on  banks,  etc. 

]\Ir.  Hayes.  How  long  ago  was  this  panic  that  you  s])eak  of  in 
Japan? 

Mr.  Jordan.  During  the  spring  of  1007. 

Mr.  Weeks.  How  many  banks  have  they  there  ? 

Mr.  Jordan.  I  can  not  tell  you  the  number  of  banks  there  now. 
In  the  last  information  I  got  from  Japan  there  is  an  outline  of  the 
banking  system,  but  it  does  not  show  the  number  of  banks. 

Mr.  Pujo.  Have  j^ou  studied  the  provisions  of  what  is  known  as 
the  Aldrich  bill  ? 

Mr.  Jordan.  Yes. 

Mr.  Pujo.  ^A^iat  are  j^our  views  on  that  measure? 

Mr.  Jordan.  I  am  very  much  opposed  to  it. 

Mr.  Pujo.  I  mean  as  to  the  character  of  the  currency  and  the  issue 
under  it. 

Mr.  Jordan.  Even  as  a  believer  in  an  emergency  currency  I  am 
opposed  to  it,  and  my  opposition  is  on  account  of  allowing  railroad 
bonds  to  be  used  as  a  basis  of  cii^culation. 

Mr.  Pujo.  Assuming  that  that  is  to  be  eliminated  and  that  it  will 
be  confined  to  United  States  Government  bonds  solely,  to  protect  the 
issue  under  it,  what  are  your  comments  on  it  ? 

Mr.  Jordan.  I  think  it  would  be  very  good,  except  that  I  think 
that  the  currency  could  be  rearranged  so  as  to  be  more  easily  issued 
and  that  it  should  be  prevented  from  being  absorbed  by  speculation 
b}'^  increasing  the  tax  to  1^  per  cent  per  annum. 

Mr.  Pujo.  As  to  matters  of  detail,  yes.  It  is  onW  deficient  in  your 
judgment  as  to  matters  of  detail  if  the  issue  is  protected  by  United 
States  bonds  ? 

Mr.  Jordan.  Yes.  and  a  tax  to  prevent  its  absorption  by  specula- 
tion. 

Mr.  Pujo.  You  would  not  include  State  or  municipal  bonds? 

Mr.  Jordan.  No,  sir;  because  I  think  that  would  lead  to  dealings 
in  order  to  retain  political  power.  The  objection  there  would  be  that 
an  Administration  could  grant  this  privilege  for  the  purpose  of  ob- 
taining political  support.    I  think  it  is  too  dangerous. 

Mr.  Weeks.  In  what  respect  Avould  it  be  different  from  the  present 
system  if  you  limit  the  issue  to  United  States  bonds? 

jNIr.  Jordan.  It  would  not  be  at  all  different,  but  I  Avould  suggest 
that  it  be  changed  so  as  to  make  it  more  serviceable  and  prevent  its 
use  in  speculating  in  bonds. 

Mr.  AVeeks.  It  would  be  the  same  thing  ? 

Mr.  Jordan.  As  it  stands,  yes. 

Mr.  McKinney.  Whnt  recommendation  have  you  to  make  in  con- 
nection with  the  present  system? 

Mr.  Jordan.  A  further  extension  of  our  United  States  bond- 
secured  currency  under  such  terms  and  conditions  as  will  provide 


40  CURRENCY   LEGISLATION. 

an  emergency  circulation  onh'  and  facilitate  the  issue  of  notes  in 
small  denominations.  It  is  the  best  currency  system  ever  used  by 
this  or  an}-  other  country.  If  the  people  desire  the  cheapest  and 
safest  form  of  currency  in  daily  use  yet  known  to  any  commercial 
nation  to  be  perpetuated  for  their  benefit,  they  will  refuse  to  allow 
the  destruction  of  our  present  United  States  bond-secured  national- 
bank  notes.  There  is  no  reserve  required  against  this  currency.  It 
has  proven  absolutely  safe,  and  has  secured  the  confidence  of  the 
public.     Ever}"  bit  of  capital  given  for  the  bonds  was  used. 

Mr.  jMcKinney.  We  have  that,  have  we  not  ? 

Mr.  Jordan.  We  have. 

Mr,  McKiNNEY.  What  I  asked  you  is,  what  do  you  propose  in 
addition  to  the  system  we  have  or  in  amendment  of  it  ? 

Mr.  Jordan.  Due  to  the  fault  that  we  can  not  get  small  notes 
promptly  when  we  want  them  under  our  present  system,  we  should 
liaA^e  an  amendment  so  that  a  portion  of  our  notes  could  be  issued 
as  one  note,  instead  of  being  issued  as  6,500  different  notes,  or,  in  case 
of  the  adoption  of  asset  currency,  even  more.  If  such  a  provision 
existed,  banks  could  perform  all  the  banking  functions  of  the  year 
with  the  amount  of  notes  now  in  existence,  because  a  large  amount  of 
currency  is  hoarded  in  these  small  notes,  owing  to  the  fact  banks  can 
not  get  these  small  denominations  when  they  want  them.  In  order 
to  supply  the  possible  needs  of  their  customers,  banks  hold  more 
small  notes  than  they  need  in  anticipation  of  a  demand  that  does  not 
come.  If  the  banks  had  an  unlimited  fund  of  small  notes  that  they 
could  tap  at  any  moment,  they  would  not  hoard  circulation  as  they 
now  do. 

My  proposition  would  be  that  State  and  national  banks  should 
both  be  allowed  to  obtain  notes  from  a  special  fund  of  notes  already 
prepared  and  distributed  among  the  subtreasuries  throughout  the 
country.  The  banks  would  have  to  deposit  gold  coin  of  full  value 
or  United  States  bonds  to  the  par  of  the  notes  obtained,  and  pay  a 
charge  of  one-eighth  of  1  per  cent  each  time  they  took  out  these 
notes,  which  could  only  be  issued  and  reissued  during  September, 
October,  November,  and  December. 

The  issue  upon  United  States  bonds  should  be  limited  to  $100,- 
000.000,  and  banks  should  pay  a  tax  of  1^  per  cent  per  annum  upon 
the  bo'nds  while  on  deposit  as  security  for  these  notes. 

The  issue  against  gold  should  be  unlimited,  and  the  charge  of 
one-eighth  of  1  per  cent  would  prevent  undue  use,  also  their  compe- 
tition with  our  silver  certificates. 

If  the  Comptroller  of  the  Currency  were  permitted  to  have  notes 
printed  different  in  form  from  any  now  in  use,  they  could  easily 
be  assorted  and  returned  for  redemption.  I  do  not  think  their  di:f- 
fei-ence  in  color  and  form  would  be  a  danger  signal,  as  they  would 
be  in  constant  circulation  as  against  gold.  They  would  merely  in- 
dicate the  inability  to  obtain  small  denominations  in  our  other  forms 
of  currency. 

The  notes,  l)eing  ])]aced  in  the  subtreasuries  throughout  the  coun- 
ti-y.  could  be  had  instantly,  and  then  banks  Avould  not  have  to  wait 
foi'ty-five  days  to  have  their  circulation  printed,  or  about  ninety  days, 
regally,  in  ordei-  to  get  a  properly  seasoned  note. 

By  allowing  tlie  issue  of  these  notes  against  United  States  Gov- 
ernment l)onds  under  a  tax  of  H  per  cent  on  the  bonds  you  would 


CURRENCY   LEGISLATION.  41 

prevent  banks  using  this  privilege  to  speculate  in  the  bonds  and 
would  reserve  the  notes  for  an  emergency  issue.  It  would  not  be 
used  in  ordinary  times  except  against  gold. 

Mr.  AVeeks.  Are  you  aware  of  the  fact  that  in  the  city  of  Pitts- 
burg alone  they  issued  $45,000,000  of  clearing-house  checks 

Mr.  Jordan.  I  understand  tlic}^  issued  a  very  large  amount. 

Mr.  Weeks.  To  carry  on  their  local  business  during  the  panic? 

Mr.  Jordan.  Yes;  but  under  this  S3'stem  I  do  not  think  the  panic 
w^ould  have  taken  place.  The  very  fact  that  the  banks  would  have 
the  right  to  obtain  these  notes  and  could  obtain  them  instantly, 
rather  than  have  to  wait  two  or  three  months  for  them,  would  pre- 
vent a  general  panic. 

As  reason  for  this  conclusion  I  desire  to  quote  from  a  letter  dated 
December  16,  1907,  received  from  the  Bank  of  England : 

I  may,  liowever,  point  out  that  only  on  one  occasion  liave  the  bank  actually 
issued  notes  against  securities  beyond  the  statutory  limit.  It  is  true  that  in 
each  of  the  three  years  you  mention  (1S47,  1857,  and  1SG6)  the  Government 
authorized  them  to  make  such  issues,  but  only  in  1857  was  this  permission 
used. 

I  may  add  tliat  on  the  first  occasion  of  their  receiving  such  authority  the 
bank  raised  their  rate  of  discount  from  G  per  cent  to  8  per  cent ;  on  the  second 
occasion  they  allowed  the  rate  to  remain  at  10  per  cent,  the  point  at  which  it 
already  stood,  and  on  the  third  they  raised  it  from  S  per  cent  to  9  per  cent. 

Mr.  McKiNNEY.  Did  I  understand  you  to  say  that  you  favored 
State  banks  i.ssuing  circulating  notes  secured  by  United  States  bonds? 

Mr.  Jordan.  Yes.  Commercial  banks  carrying  the  working  bal- 
ances of  the  community  are  based  on  the  same  principles,  whether  or- 
ganized under  State  or  national  law.  Both  State  and  national  banks 
have  to  face  the  same  emergency.  The  circulation  would  be  safe,  as 
it  would  be  fullv  secured  by  gold  or  United  States  bonds,  and  be  a 
first  lien. 

Mr.  Gillespie.  You  are  talking  about  the  $100,000,000  of  currency 
now^  ? 

Mr.  Jordan.  Yes,  sir;  as  regards  the  issue  of  notes  against  United 
States  Government  bonds.  The  limit  would  not  apply  to  issues 
against  gold. 

Mr.  Gillespie.  You  are  not  speaking  about  the  1^  tax  and  the  one- 
eighth  charge  as  applied  to  the  general  issue  of  banks? 

Mr.  Jordan.  Xo,  sir;  not  to  the  present  national-bank  notes,  onl}' 
regarding  the  proposed  emergency  issue. 

Mr.  Gillespie.  The  present  system  you  would  change  in  some  w^ay. 

Mr.  Jordan.  Yes ;  I  would  suggest  an  additional  currenc}^  privilege 
for  use  in  emergency  only;  that  is,  to  assist  liquidation  only.  It 
would  be  a  supplementary  currency.  It  does  not  change  the  security 
for  our  bank  circulation  except  by  adding  gold. 

Mr.  Waldo.  How  would  it  have  aided  us  in  this  trouble  when 
banks  were  entitled  to  take  out  between  two  and  three  hundred  mil- 
lions of  additional  currency,  which  they  did  not  do  at  the  time  and 
which  thev  have  not  done  up  to  date,  although  thev  have  increased  it 
slightly?  ' 

Mr.  Jordan.  Our  national  banks  increased  their  circulation  about 
$100,000,000  in  the  past  year.  The  proposed  issue  would  have  been 
immediately  available  and  could  have  been  instantly  retired.  The 
additional  circulation  against  bonds,  being  taxed  1^  per  cent,  would 


42  CURRENCY   LEGISLATION. 

not  have  been  issued  mitil  the  emergency  came,  as  it  would  be  unprofit- 
able to  issue  except  as  a  means  of  preventing  forced  liquidation. 

Mr.  Waldo.  All  that  would  be  necessary  to  do  then,  to-day,  would 
be  to  remove  the  restriction  on  the  retirement  limit  of  currency, 
would  it  not? 

Mr.  Jordan.  No.  It  would  still  take  too  long  to  get  your  notes. 
They  must  be  instantly  available.  Besides,  the  privilege  would  have 
been  exhausted  before  the  emergency  came  if  it  were  not  subject  to 
a  tax  sufficient  to  render  its  issue  unprofitable  under  ordinary  rates. 

Mr.  Waldo.  In  taking  it  out  it  requires  too  much  time ;  but  you  can 
retire  it  at  any  moment  to-day  up  to  nine  millions  a  month,  and  if 
we  remove  the  restriction  on  the  retirement  you  can  withdraw  your 
whole  currency  to-morrow,  if  you  want  to. 

Mr.  Jordan.  That  would  depend.  There  would  be  no  true  retire- 
ment about  it  if  the  lawful  money  deposited  in  the  Treasury  by  the 
banks  in  order  to  withdraw  their  circulation  were  to  be  redeposited 
by  the  Government  in  the  banks.  The  deposit  of  lawful  money  does 
not  withdraw  the  bank  notes  from  circulation;  it  merely  retires  an 
equivalent  amount  of  currency. 

Mr.  Waldo.  That  would  answer  j^our  objection  on  the  one  side.  It 
would  be  merely  a  repeal  of  the  law  that  limits  the  retirement  of 
nine  millions  a  month. 

Mr.  Jordan.  Not  altogether. 

Mr.  Waldo.  Would  not  that  reach  it  on  the  one  side? 

Mr.  Jordan.  Yes,  on  the  one  side. 

Mr.  Waldo.  All  that  is  necessary  on  the  other  side  is  to  change 
the  machinery  of  issue. 

Mr.  Jordan.  To  change  the  machinery  of  i&sue 

Mr.  Hayes.  There  could  be  a  direction  in  the  law  to  the  Comp- 
troller of  the  Currency  to  have  that  currenc}^  ready. 

Mr.  Jordan.  How  is  the  bank  to  know  when  it  will  need  it?  The 
proposed  issue  would  be  circulated  as  the  note  of  one  bank.  Any 
bank.  State  or  national,  could  instnntl}'  obtain  the  notes.  Again,  its 
simplicity  would  aid  in  redemption. 

(At  this  point  Mr.  Powers  took  the  chair  as  acting  chairman.) 

The  Acting  Chairman.  You  mean  to  reduce  it  to  a  form  of  cur- 
rency ? 

Mr.  Jordan.  Yes,  sir;  it  would  be  a  supplementary  currency  issued 
as  a  universal  note. 

The  Acting  Chairman.  In  addition  to  what  we  have  now? 

Mr.  Jordan.  Exactly. 

The  Acting  Chairman.  If  you  have  to  put  up  Ixuids  to  the  full 
amount 

Mr.  AVeeks.  AVhere  are  you  going  to  get  the  lawful  reserve  to  buv 
it? 

Mr.  Jordan.  If  you  have  not  the  bonds  or  sufficient  credit  power 
you  could  not  take  out  the  circulation.  Lawful  reserve  money 
could  only  be  obtained  by  the  banks  paying  out  this  circulation  and 
substituting  it  in  the  hands  of  the  ])ublic  for  lawful  money.  As 
regards  a  redemption  fund,  it  Avould  take  away  no  money  for  reserves, 
because  the  redemption  fund  may  be  counted  in  reserves. 

The  Acting  Chairman.  Do  3'ou  think  thut  would  render  the  sys- 
tem elastic? 


CURKENCY    LEGISLATION.  43 

Mr.  Jordan.  I  should  say  so,  as  it  would  provide  against  extremes 
of  either  need  of  or  issue  of  currency. 

The  Acting  Chairman.  What  is  to  retire  them? 

Mr.  Jordan.  The  tax  of  1|  per  cent  per  annum. 

The  Acting  Chairman.  IIow  would  you  relire  them  on  account  of 
the  tax  ? 

Mr.  Jordan.  The  deposit  of  gold  coin  with  the  United  States 
Government  would  retire  an  equivalent  amount  from  circulation. 

The  Acting  Chairman,  Let  me  ask  you  this :  Do  you  believe  that 
the  tax,  be  it  big  or  little,  under  the  present  laws  would  have  a  thing 
to  do  with  retiring  currency? 

Mr.  Jordan.  Yes,  sir;  because  if  it  was 

The  Acting  Chairman.  Then,  you  think  differently  from  what 
the}'^  do  at  the  Treasury  Department. 

Mr.  Jordan.  I  do;  I  think  it  is  a  withdrawal  of  an  equivalent 
amount  of  money,  and  is  therefore  the  same  thing  as  retirement  of 
the  bank  notes.  If  the  tax  were  sufficiently  large  as  to  take  away  the 
profits,  and  so  make  its  issue  of  use  only  in  an  emergency 

The  Acting  Chairman.  Let  us  follow  that  a  little  further.  I  wnll 
suppose  that  a  bank  lias  tjiken  out  $50,000  and  wants  to  retire  it. 
You  would  iDermit  them  to  carry  in  lawful  money  and  deposit  it  in 
the  Treasury.  That  stops  their  interest,  but  the  currency  is  still  out 
circulating,  just  the  same  as  if  it  w^ere  not  retired  at  all. 

Mr.  Jordan.  Pardon  me.  That  particular  currency  is  not  retired, 
but  the  money  deposited  is  retired,  which  is  equivalent. 

The  Acting  Chairman.  There  is  no  law  impending  that  you  shall 
only  pay  it  out  as  fast  as  you  get  the  other  currency  in. 

jVIr.  Jordan.  There  should  be.  The  money  that  is  put  in  the  Treas- 
ury for  such  a  purpose  should  be  held  there;  otherwise  you  Avould 
destroy  the  intention  of  your  act  and  aid  in  inflation. 

The  Acting  Chairman.  You  would  have  to  have  special  legisla- 
tion for  that. 

Mr.  Jordan.  Yes.  As  regards  the  proposed  issue,  if  you  offered 
a  premium  of  one-eighth  of  1  per  cent  for  the  notes  they  would  be 
sent  home  to  you,  and  you  could  take  them  to  the  Treasury  and  ex- 
change them  for  the  gold  in  the  special  fund.  They  could  not  be  re- 
issued except  during  the  fall  and  winter  months. 

The  Acting  Chair^ian.  I  do  not  understand  that  under  the  exist- 
ing methods  and  under  existing  laws  that  a  tax  would  cause  retire- 
ment, because  the  banks  would  get  rid  of  the  tax  by  depositing 
lawful  money,  and  therefore  the  tax  would  not  have  anything  to 
do  with  retiring  the  currency. 

Mr.  Jordan.  It  would  not  necessarily,  under  the  present  law,  be- 
cause, although  an  equivalent  sum  of  money  would  be  deposited  with 
the  (lovernment.  this  money  might  be  paid  out  again  and  not  held 
for  the  redemption  of  the  notes.  I  think  such  an  act  on  the  part  of 
the  Government  defeats  the  retirement  provisions  of  our  national- 
bank  act.  However,  I  am  not  proposing  to  issue  this  additional  cur- 
rency under  the  same  methods. 

The  Acting  CnAiRivrAN.  Do  you  believe  that  bond-secured  cur- 
rency can  be  made  sufficiently  elastic? 

Mr.  Jordan.  Our  United  States  bond-secured  currency  is  suffi- 
ciently elastic  if  you  prevent  its  being  used  to  speculate  in  bonds. 


44  CURRENCY   LEGISLATION. 

Under  the  j^roposed  methods  I  tliink  it  would  be  sufficiently  elastic 
for  safety.  If  banks  did  not  absorb  their  surplus  credits  in  an  effort 
to  carry  inflated  securities,  there  would  be  plenty  of  elasticity  in  our 
medium  of  exchange.  I  think  the  proposed  issue  would  reach  the 
needs  of  the  country  without  causing  inflation.  If  it  did  not  work, 
it  would  not  cause  a  dangerous  inflation,  and  it  could  be  done  away 
with. 

You  can  not  furnish  sufficient  currency  to  meet  all  the  demands 
of  an  elastic  speculation. 

The  Acting  Chairman.  Have  you  examined  the  Fowler  bill? 

Mr.  Jordan.  I  have. 

The  Acting  Chairman.  What  do  you  think  of  the  principle  upon 
which  it  is  based  as  to  the  currency ;  also  as  to  guaranteeing  deposits 
of  all  banks? 

Mr.  Gillespie.  Let  us  get  his  opinion  on  the  subject  of  guarantee- 
ing dej)Osits. 

The  Acting  Chairman.  What  is  your  idea  about  guaranteeing 
deposits  ? 

Mr.  Jordan.  I  think  the  guaranteeing  of  deposits  through  the  me- 
dium of  a  guaranty  fund  is  unsound,  as  it  will  not  only  produce 
confidence,  but  overconfidence. 

The  Acting  Chairman.  I  guess  you  and  I  agree  on  that. 

Mr.  Jordan.  This  overconfidence  would  lead  to  greater  specula- 
tion, and  consequently  a  greater  panic. 

My  objection  to  the  bill  is  on  account  of  its  currency  and  guaranty 
of  deposits  provisions.  Its  provisions  relating  to  trust  and  savings 
deposits  are  very  good,  and  its  restriction  as  to  payment  of  interest 
on  demand  deposits  is  a  long  step  in  the  right  direction. 

I  am  opposed  to  the  introduction  of  an  asset  or  flexible  currency' 
into  our  banking  system,  managed  as  it  is,  and  our  people  being  so 
speculative.  I  think  that  credit  currency  would,  during  a  period  of 
rising  prices,  be  used  to  produce  greater  inflation  under  a  system 
where  bankers  not  only  do  not  attempt  to  check  speculation,  but,  on 
the  contrary,  often  encourage  it. 

The  reserve  system  is  very  unsound,  as  it  places  our  national  bank 
notes  on  the  same  footing  as  regards  reserves  as  our  deposit  credits. 
The  failure  of  any  large  demand  deposit  institution  in  a  central 
reserve  city  would  tie  up  the  circulating  medium  of  the  common 
people,  and  thus  cause  great  loss  to  those  least  able  to  bear  it.  The 
majority  of  the  holders  of  our  bank  notes  do  not  keep  accounts  with 
banks  or  borrow  money  from  them,  and  are  therefore  only  receiving 
the  indirect  benefits  from  banking. 

The  insurance  of  deposits  by  the  National  Government  would 
throw  the  burden  on  the  people.  It  would  produce  overconfidence. 
The  guaranty  would  be  taken  advantage  of  by  speculators,  and  in 
the  end  jDroduce  panic,  even  undermining  confidence  in  the  National 
Government. 

Compulsory  insurance  would  weaken  our  system,  as  banks  with  a 
carefully  selected  line  of  assets  would  not  care  to  be  taxed  for  tlic 
speculative  excesses  and  bad  judgment  of  tlieir  neighbors.  Good 
banks  would  drop  out  of  the  system.  Speculators  would  come  into 
it,  and  would  depend  upon  the  guarautee  fund  rather  than  upon  the 
convertibility  of  assets  to  secure  confidence.    The  assets  of  the  banks 


CURRENCY   LEGISLATION.  45 

which  should  loan  on  liquid  or  operating  capital  Avould  boconit 
speculative  and  stringent. 

Unless  there  is  some  method  of  interested  representation  and  effi- 
cient negative  control  of  the  loans  of  the  banks  their  deposits  can  not 
be  safely  insured. 

This  insurance  is  not  like  life  insurance.  A  man  naturally  protects 
his  life.  His  policy  does  not  promise  to  give  him  another.  It  is  not 
like  fire  insurance.  The  character  of  a  house  is  fixed  and  the  policy 
of  insurance  contains  a  clause  that  makes  the  policy  voidable  on  the 
part  of  the  company  if  any  alteration  is  made  in  the  house  which 
affects  its  character  without  the  consent  of  the  company.  The  assets 
of  a  commercial  bank  are  constantly  changing  and  are  not  fixed  in 
character.  The  positions  of  borrower  and  lender  are  constantly 
changing  among  its  customers  and  depositors. 

The  insurance  of  deposits  without  effective  control  would  produce 
unsound  banking.  A  mortality  table  based  on  the  present  independent 
banking  system  with  its  bond-secured  currency,  which  figures  out  an 
annual  tax  of  one-eighth  of  1  per  cent  would  more  than  cover  any  loss, 
can  not  be  applied  to  your  new  system,  where  you  intend  to  alter 
it  so  radically.  If  that  is  all  the  loss  we  have  had  under  our  present 
system  for  the  last  forty  years,  and  our  country  has  grown  as  it  has, 

I  think  it  is  a  pretty  good  system  to  stick  to. 

Mr.  McKiNKEY.  As  regards  the  circulation  under  the  Fowler  bill, 
how  do  you  stand  on  that  ? 

Mr.  Jordan.  I  do  not  believe  a  note  holder  and  a  depositor  should 
be  placed  on  a  parit3\  .V  note  holder  should  have  greater  protection 
than  a  depositor,  because  the  depositor  selects  his  bank  willinglj^  and 
knowingly,  and  he  should  take  the  risk  and  not  share  it  with  the 
note  holder.  There  should  be  priority  of  right  of  security  as  regards 
the  note  holder.  A  deposit  is  not  an  involuntary  act.  If  a  depositor 
loses  his  bank  book  he  does  not  lose  his  account.  If  a  note  holder 
loses  the  note,  he  can  not  recover.    It  is  not  fair  to  the  common  people 

Mr.  Waldo.  But  suppose  you  make  a  note  which  is  a  lien  on  all 
the  assets  of  the  bank? 

Mr.  Jordan.  That  removes  my  objection. 

Mr.  Waldo.  You  are  opposed,  as  I  understand  you,  to  any  sys- 
tem of  asset  currency  ? 

Mr.  Jordan.  As  regards  to  being  introduced  into  our  system,  most 
emphatically;  but  that  does  not  mean  that  I  do  not  think  it  a  good 
idea  when  properly  handled,  as  it  is  under  the  Canadian  and  Scotch 
systems.  Those  bankers  do  not  permit  their  customers  to  speculate 
with  credits  of  the  banks.  These  systems,  however,  are  practically 
monopolies.  The  35  chartered  banks  of  Canada  have  a  pretty  gen- 
eral understanding  through  the  Canadian  Bankers'  Association.  I 
have  a  very  high  admiration  for  the  way  they  handled  this  recent 
crisis.  But  in  order  to  make  a  success  of  their  system  of  note  issues 
in  this  country  it  would  be  necessary  to  bring  over  their  branch  bank- 
ing system,  their  assets,  the  experience  of  their  people  under  it,  their 
bankers  to  manage  it,  and  their  staff  to  carry  it  out.    There  are  about 

II  banks  in  Scotland,  and  it  is  very  difficult  to  start  a  new  one. 

The  Acting  Chairman.  Let  me  ask  you  one  question  more.  We 
have  had  our  system  a  good  many  years — forty  or  fifty  years — and 
no  other  nation  in  establishing  a  system  has  seen  fit  to  follow  it. 


46  CUKRENCY   LEGISLATION. 

Mr.  JoRDAX.  As  far  as  that  is  concerned,  the  Japanese  followed  it 
and  then  abandoned  it. 

The  Acting  Chairman.  They  followed  it  a  veiy  short  time  and 
threw  it  out. 

Mr.  Jordan.  On  account  of  a  rebellion,  and  also  I  believe  they  w^ere 
on  a  silver  basis.  It  was  an  unfortunate  decision,  or  rather  unjusti- 
fied, in  light  of  what  happened  last  spring.  I  referred  to  that  a  short 
while  ago. 

Mr.  Hayes.  I  want  to  ask  if  it  is  not  true  that  there  is  no  other 
commercial  nation  in  modern  times  that  has  had  what  we  call  a  cur- 
rency or  money  panic?    If  there  is  one  I  never  heard  of  it. 

Mr.  Jordan.  I  think  panics  are  produced  by  loss  of  confidence  in 
the  banks,  as  a  rule,  and  a  desire  of  people  to  convert  their  deposits 
into  immediateh'  available  resources  under  any  and  all  conditions — 
gold.  Although  the  inability  of  a  government  that  issues  paper  money 
to  convert  it  readih^  into  the  standard  of  of  value  of  that  country, 
with  which  the  paper  is  supposed  to  circulate  at  parity,  has  caused 
money  panics. 

Mr.  Hayes.  No,  not  entirely.  That  might  be  debatable,  but  is 
there  any  other  commercial  nation  that  has  had  a  currency  panic  in 
the  last  fifty  years  except  the  United  States? 

Mr.  Jordan.  I  do  not  think  we  have  had  one. 

Mr.  Hayes.  "Well,  I  have  been  through  two  myself,  and  I  am  under 
the  strong  impression  that  we  have  had. 

Mr.  Jordan.  I  did  not  quite  catch  the  question.  I  was  referring  to 
1907.  I  do  not  think  it  w^as  a  currency  panic.  I  think  it  w'as  a  de- 
positors' panic. 

Mr.  Hayes.  I  could  not  get  any  money  in  1894,  even  on  United 
States  bonds.    I  could  not  raise  it  on  anything. 

Mr.  Jordan.  That  was  because  of  the  belief  we  were  going  on  a 
silver  basis. 

Mr.  Hayes.  Is  there  any  other  country  in  the  world  that  has  had 
such  a  panic  as  that  ? 

Mr.  Jordan.  Not  that  I  recall  at  the  moment."  There  was  a  panic 
in  Chile  last  j^ear  and  their  paper  money  depreciated. 

Mr.  Waldo.  I  would  like  to  ask  one  question  that  goes  into  the 
fundamentals  of  this  thing.  Is  there  aii}^  reason  why  the  laws  of 
this  country  should- compel  bankers,  or  an^^one  who  desires  to  go  into 
the  banking  business,  to  accept  deposits  and  be  prepared  to  pay 
out  lawful  money  at  any  time,  on  demand  ?  In  other  words,  let  me 
put  it  in  concrete  form :  With  fifteen  billions  of  credits  due  to  de- 
positors in  the  banks,  there  is  in  actual  existence  to-day,  if  I  remem- 
ber correctly,  about  three  thousand  millions  of  money  of  all  kinds — 
less  than  one  thousand  millions  in  the  banks;  that  there  is  a  little 
less  than  one  billion  of  all  kinds  of  surrency  to  meet  fifteen  billions 
of  credit;  and  under  our  present  system  the  only  thing  they  can  be 
paid  with,  to  act  legally,  is  that  one  thousand  millions.  So  the  banks 
are  put  in  a  position  Avhere,  in  case  of  a  depositors'  panic,  as  you 
call  it,  they  are  all  at  once  insolvent  because  the}^  can  not  make 
payments. 

Mr.  Jordan.  It  should  be  as  regards  commercial  banks.  If  it  were 
not,  banking  w'ould  cease,  as  working  balances  would  not  be  carried 
with  banks  unless  depositors  could  convert  their  credits  into  the 
standard  measure  of  value  (gold)  or  money  on  a  parit}^  therewith, 


CURRENCY   LEGISLATION,  47 

on  demand.  People  would  not  deposit  mone}'.  You  can  not  pay 
them  off  in  times  of  distrust  by  changing  the  form  of  a  credit  to  a 
circulating  note. 

A  banker  banks  on  the  fact  that  his  depositors  will  not  all  want 
their  credits  converted  into  money  at  the  same  time.  If  they  did, 
there  could  be  no  banking. 

In  the  panic  of  1907  people  were  attempting  an  impossibility  in 
trying  to  convert  the  credits  of  this  countr}'  into  cash.  The  only 
recourse  of  the  banks  in  affected  centers  was  to  suspend  currency 
payments,  as  their  loans  could  not  be  liquidated — just  as  in  185T.  It 
was  necessary  for  the  mutual  protection  of  all  concerned.  I  do  not 
think  the  small  people  were  hoarding  money  as  much  as  the  larger 
ones. 

Asset  bank  notes  would  have  been  no  relief  during  a  panic  caused 
by  lack  of  confidence  in  banks.  The  public  would  have  discrim- 
inated against  them  just  as  much  as  against  deposit  credits.  We 
would  have  had  a  currency  panic  also,  and  the  loss  would  have  fallen 
on  the  poorer  people. 

Those  who  remember  the  old  currency,  the  profits  of  the  men  who 
handled  it,  and  the  daily  occurring  losses  of  the  public,  do  not  want 
to  see  its  like  again. 

Mr.  Waldo.  Is  it  not  a  fact  that  a  large  part  of  the  circulation  of 
the  Bank  of  France  is  based  on  that  very  thing,  and  that  there  has 
never  been  any  trouble  ? 

Mr.  Jordan.  No,  sir;  because  there  is  over  85  per  cent  in  gold  or 
silver,  as  a  rule,  held  against  its  notes  and  deposits. 

Mr.  Hayes.  But  that  reserve  is  not  against  its  own  obligations  only, 
but  against  those  of  all  of  the  branch  banks.  It  is  a  reserve  for  the 
whole  nation? 

Mr.  Jordan.  Not  exactly.  The  Bank  of  France  is  a  branch  bank- 
ing organization.  The  reserve  is  against  all  its  notes  and  against 
all  its  deposits,  whether  of  its  head  office  or  branches.  It  is  not 
compelled  to  keep  this  reserve,  but  it  is  its  custom. 

Mr.  Hayes.  A  national  reserve? 

Mr.  Jordan.  Its  reserve  is  against  its  notes  and  public  liabilities. 
It  is  the  only  bank  that  issues  notes. 

Mr.  Hayes.  But  not  against  its  notes  and  its  own  deposits  onh^ 

Mr.  Jordan.  Yes;  though  I  believe  it  acts  as  a  central  bank, 
just  as  the  Bank  of  England  does,  and  discounts  commercial  paper 
due  within  three  months  upon  indorsement  of  two  other  banks  or 
bankers. 

Mr.  Weeks.  Now,  to  return  to  the  Aldrich  bill,  you  referred  a  little 
M'hile  ago  to  the  fact  that  issuing  circulation  against  State  or  munici- 
pal bonds  would  give  too  much  political  power  to  the  administration, 
I  believe  you  said. 

Mr.  Jordan.  Yes,  in  the  sense  that  it  would  give  a  privilege  which 
could  be  offered  by  whatever  party  was  in  power. 

Mr.  Weeks.  In  what  way  AvouJd  that  be  accomplished? 

Mr.  Jordan.  In  this  way :  The  right  of  having  the  currency  priv- 
ilege would  aid  in  getting  a  better  price.  The  understanding  that  the 
))onds  would  be  accepted  as  security  for  circulation  would  aid  in 
marketing  the  bonds.  The  privilege  would  be  of  advantage  to  any 
State,  county,  or  city. 

Mr.  Weeks.  Is  there  any  objection  to  that  ? 


48  CURRENCY   LEGISLATION. 

Mr.  Jordan.  It  would  permit  a  party  to  promise  this  privilege,  or 
the  extension  of  it,  in  return  for  support  at  election. 

Mr.  Weeks.  Granting  what  privilege  ? 

Mr.  Jordan.  The  acceptance  of  these  bonds  as  a  basis  for  security 
for  national  bank  note  circulation. 

Mr.  Hayes.  Do  you  think  that  in  most  times,  if  they  had  to  pay  6 
per  cent  interest  on  circulation,  it  would  be  a  ver}^  great  favor  to 
them? 

Mr.  Jordan.  The  net  loss,  about  2  per  cent,  resulting  from  the  tax 
of  one-half  of  1  per  cent  a  month  after  deducting  the  interest  on  the 
bonds,  would  be  more  than  made  up  by  profits  from  fluctuations  of 
the  stocks  in  which  interested  parties  were  dealing. 

Mr.  Hayes.  I  agree  with  you. 

Mr.  Gillespie.  Your  idea  is  that  if  New  York  saw  an  opportunity 
of  having  the  privilege  of  making  her  bonds  the  basis  of  currency 
the  citizens  of  New  York,  for  this  special  advantage  to  them,  ATOuld 
get  behind  the  party  there  to  its  advantage  ? 

Mr.  Jordan.  Yes,  sir;  or  any  other  city,  county,  or  State  that  de- 
sired to  market  bonds  at  a  more  advantageous  figure. 

Mr.  Gillespie.  And  if  we  should  get  on  that  system  and  there, 
should  come  up  an}^  question  of  getting  from  under  it,  would  not  the 
citizens  of  New  York  make  the  claim  that  by  virtue  of  the  law  you 
have  boosted  their  markets,  and  that  they  have  mone}^  invested  and 
plead,  just  like  the  bondholders  of  the  National  Government,  not  to 
interfere  with  the  market  for  the  bonds? 

Mr.  Jordan.  That  is  a  very  good  illustration..  It  would  certainly 
tie  up  the  National  Government  with  bond  markets.  There  is  no  pro- 
vision in  the  Aldrich  bill  that  w^ould  protect  the  Government  in  case 
the  bill  failed  to  work  as  designed.  I  think  there  should  be  in  every 
financial  measure. 

Mr.  Hayes,  That  I  admit;  but  I  do  not  see  how  the  political  power 
comes  in,  because  the  bonds  of  every  State  and  every  country  and 
every  municipality  of  a  certain  size  are  to  be  included  in  this  basis 
for  circulation. 

Mr.  Jordan.  I  did  not  catch  your  question. 

Mr.  Hayes.  If  it  is  the  basis  for  circulation,  I  do  not  see  where  the 
political  power  would  go  with  it. 

Mr.  Jordan.  Because,  if  political  leaders  wanted  the  support  of 
any  State  or  county  they  could  promise  to  extend  the  privilege,  say- 
ing: "  Well,  we  Avill  enable  your  city  bonds  to  be  used.''  The  grade 
of  the  bonds  accepted  would  gradually  deteriorate. 

Mr.  Weeks.  Do  you  think  that  sort  of  nonsense  is  used  in  connec- 
tion with  national  currency?  Do  you  think  that  any  party  of  men 
in  responsible  positions  w^ould  use  that  sort  of  nonsense  in  connection 
with  national  currecy? 

Mr.  Jordan.  Yes.  As  regards  deposits  of  funds  in  national  banks, 
that  has  already  been  done. 

Mr.  Weeks.  What  evidence  have  you  that  there  is  any  political  in- 
fluence whatever  in  connection  with  the  policy  of  the  Secretary  of 
the  Treasury  in  depositing  funds  in  national  banks? 

Mr.  Jordan.  In  1904  money  was  very  cheap  in  New  York  and  the 
country  was  in  a  period  of  depression.  In  fact,  banks  did  not  know 
what  to  do  with  the  money.  There  was  about  ninety  millions  of 
money  left  b}^  the  Government  in  banks  throughout  the  country. 


CURRENCY   LEGISLATION.  49 

There  was  no  need  for  that  money.  It  was  not  demanded  in  busi- 
ness. Why  was  it  left  there?  Was  it  for  the  purpose  of  starting 
an  inflation  to  create  an  appearance  of  prosperity  in  order  to  obtain 
support  in  the  Presidential  election  in  the  fall?  That  cheap  money 
was  at  the  basis  of  this  present  inflation.  There  is  danger  in  it. 
That  is  what  I  say. 

Mr,  Weeks.  Have  you  any  evidence  that  that  was  the  reason  it  Avas 
left  there  ? 

Mr.  Jordan.  No;  there  is  no  evidence.  It  was  done,  and  that  is, 
to  my  mind,  possibl}^  the  cause  of  its  being  done. 

Mr.  Weeks.  Do  you  not  think  other  reasons  could  be  shown  as 
well  as  that? 

Mr.  Jordan.  There  might  be.     I  would  like  to  hear  them. 

Mr.  Hayes.  Do  you  think  that  if  there  was  a  Democrat  in  the 
Presidential  office,  and  there  was  a  Democratic  Administration,  that 
the  money  would  be  scattered  around  just  the  same. 

Mr.  Jordan.  Certainly;  it  does  not  make  any  difference  what  the 
political  principles  of  the  Administration  would  be,  the  temptation 
would  be  there. 

Mr.  Hayes.  You  do  not  have  any  idea  that  the  money  was  left 
with  the  banks  with  a  political  understanding. 

Mr.  Jordan.  I  think  this:  That  it  was  not  left  there  wdth  a  politi- 
cal understanding  with  the  banks  exactly,  but  that  it  was  left  with 
the  idea  that  cheap  money  would  cause  a  speculation  in  securities 
and  create  an  appearance  of  prosperity  just  prior  to  a  Presidential 
election,  wdiich  would  tend  to  retain  the  Administration  in  power. 

Mr.  Waldo.  Do  you  think,  for  instance,  that  when  this  country 
gets  back  on  a  sound  basis  and  the  unsound  speculation  is  squeezed 
out,  and  we  start  again  to  build  up,  that  it  will  make  the  slightest 
difference  in  the  starting  of  new  schemes  and  the  extension  of  busi- 
ness whether  the  currenc}^  is  decreased  $600,000,000  or  whether  it  is 
increased  $600,000,000? 

Mr.  Jordan.  It  would  make  a  verj^  great  difference.  If  the  cur- 
rency were  decreased,  it  would  draw  money  from  the  banks  into  cir- 
culation to  replace  that  which  was  needed,  causing  a  calling  of  loans 
and  forcing  liquidation.  If  the  currency  were  increased  beyond  the 
needs  of  the  country  to  exchange  products  or  aid  in  production,  it 
would  produce  an  inflation.  The  excess  would  be  used  on  account  of 
low  rates  to  carry  commodities — that  is,  to  store  them  rather  than 
market  them,  with  the  object  of  selling  them  back  on  the  wholesale 
market  on  a  speculative  rise.  It  would  be  used  to  carr^^  commodities 
or  stocks  for  speculation  rather  than  for  retail  distribution.  If  the 
excess  issue  w^ere  great,  it  would  cause  cheap  money  and  drive  gold 
out  of  the  country,  possibly  producing  a  panic.  If  we  have  the  right 
to  increase  our  currency,  it  will  be  exercised,  for  the  very  reason 
that  if  a  speculator  can  obtain  credit  cheaply  he  will  find  means  of 
using  it. 

Mr.  Waldo.  Is  not  what  is  used  in  the  country  in  business  the 
fifteen  billions  of  credit  and  not  the  three  billions  of  currency? 

Mr.  Jordan.  Yes,  sir;  about  05  per  cent  of  our  wholesale  business 
is  conducted  on  credit  and  about  75  per  cent  of  our  retail. 

Mr.  Waldo.  Then  the  increase  in  currency  would  have  little  to  do 
with  the  expansion  of  business,  the  starting  of  new  manufactures, 

37381—08 i* 


50  CUREENCY   LEGISLATION. 

the  laying  out  and  irrigation  of  new  lands,  the  building  of  new  rail- 
roads, etc.,  would  it? 

Mr.  Jordan.  It  would  furnish  more  credit,  and  therefore  aid,  but 
if  increased  too  rapidly,  so  as  to  produce  great  speculation,  it  would 
cause  an  overconsumption  of  circulating,  or  operating,  capital  into 
fixed  investments,  and  thereby  create  a  capital  stringency.  .  The  dan- 
ger would  be  the  substitution  of  the  currency  in  place  of  reserve 
money  and  the  expansion  of  bank  credits  of  four  to  one. 

Mr.  Waldo.  I  fail  to  understand  yet  how  the  fact  that  there  is  six 
hundred  millions  or  a  thousand  millions  in  currency  has  any  effect 
in  increasing  the  credits  of  this  country.  I  do  not  see  how  it  in- 
creases the  credit  of  the  country  an^^  If  it  is  based  on  Government 
bonds  or  securities,  as  it  is  to-day,  or  if  it  is  based  on  deposits  as  pro- 
posed by'  the  asset  currency  scheme,  that  does  not  add  anything,  does 
it?  It  must  be  in  the  form  of  currency  or  in  the  form  of  credits  on 
the  books  of  the  bank. 

Mr.  Jordan.  If  you  issue  it  as  a  note  it  would  go  into  circulation 
in  place  of,  say,  gold,  and  the  bank  would  obtain  in  exchange  for  it 
that  gold,  and  thus  be  able  to  expand  deposit  credits  further. 

Mr.  Waldo.  I  know;  but  that  note  represents  the  assets  of  this 
country  in  some  shape  or  other,  does  it  not  ? 

Mr.  Jordan.  If  it  is  issued  against  value  for  the  purpose  of  mar- 
keting products,  it  is  sound.  It  may  be  loaned  against  the  customer's 
credit,  which  may  be  mereh^  secured  by  a  speculative  value.  It  rep- 
resents an  asset,  but  the  asset  may  be  fixed  or  circulating,  a  com- 
modity or  an  investment  security. 

Mr.  Waldo.  If  you  hold  that  gold  in  the  vault  of  the  United 
States,  or  in  the  vault  of  a  bank,  and  issue  paper  money  against  it 
you  have  not  increased  the  credits  of  the  country  in  any  way,  have 
you? 

Mr.  Jordan.  No;jrou  have  not.  if  you  issue  it  dollar  for  dollar, 
as  a  direct  representative — a  gold  certificate. 

Mr.  Waldo.  If,  on  the  contrary,  instead  of  issuing  it  against  the 
gold  you  issue  it  against  the  deposits  of  the  bank,  joii  have  not  in- 
creased the  credit  any,  have  you  ? 

Mr.  Jordan.  In  case  you  are  paying  off  a  depositor's  draft  in  these 
notes,  no ;  but  in  case  you  are  loaning  them  against  the  credit  of  your 
borrowers,  you  are  increasing  the  liabilities  of  the  bank. 

Mr.  Waldo.  If  you  issue  them  against  the  credit  of  the  bank,  then 
the  credit  on  the  bank  book  is  gone  the  minute  you  do  that,  is  it  not  ? 

Mr.  Jordan.  Yes;  in  case  you  are  paying  off  a  depositor,  but  in 
case  you  first  place  that  amount  to  his  credit  on  deposit  and  then 
transform  it  into  notes,  you  are  increasing. 

Mr.  Waldo.  I  understand  that. 

Mr.  Gillespie.  Mr.  Waldo's  idea  is  this,  if  I  catch  it:  If  the  banks 
had  a  right  to  issue  notes  based  upon  their  assets,  that  would  not 
add  to  their  deposit  liabilit5\  but  that  the  issue  of  these  notes  would 
bring  down  the  deposit  liability  so  that  the  aggregate  of  both  under 
the  new  system  would  not  be  more  than  the  deposit  liability  alone 
under  the  present  system. 

Mr.  Waldo.  That  is  exactly  what  I  mean. 

Mr.  Jordan.  If  paid  to  a  depositor  in  reducing  his  account,  it 
would  not  be  any  addition.  The  note  may  be  loaned  out,  however, 
and  therefore  the  liability  of  the  bank  increased  by  the  addition  of 


CURREirCY  LEGISLATION.  51 

a  new  credit.  The  man  to  whom  the  note  was  paid  by  its  original 
borrower  would  hold  it.  He  would  not  deposit  it  promptly,  like  he 
would  a  check.  These  notes  will  be  held  out  in  circulation  because 
they  are  mone}^,  or  a  means  of  unconditional  payment.  A  check  is 
a  means  of  conditional  payment  and  will  be  promptly  collected. 

Mr.  Crawford.  As  to  the  political  feature,  I  understand  you  to 
suggest  that  different  parties  might  give  assurances  to  States  or 
municipalities  that  in  the  event  of  success  at  the  polls  the  bonds  of 
the  State  or  municipality  would  be  preferred  to  those  of  some  other 
State  or  city. 

Mr.  Jordan.  No;  not  preferred,  but  that  the  privilege  would  be 
extended  to  their  bonds. 

Mr.  Crawford.  That  would  mean  to  the  exclusion  of  others? 

Mr.  Jordan.  No  ;  not  necessarily  to  the  exclusion  of  others ;  but  if 
they  wanted  to  market  their  bonds  they  would  like  to  get  this  right. 

Mr.  Craavford.  How  would  that  be  different  from  others  that  have 
the  right? 

Mr.  Jordan.  It  would  not  be  any  different,  except  that  the  market 
for  the  bonds  would  be  wider  if  the  citj  had  a  better  credit,  and 
therefore  the  United  States  Government  would  be  more  secure. 

Mr.  Crawford.  In  order  that  they  might  have  the  preference  in 
this  State  that  you  refer  to  and  have  the  preference  over  any  other 
State  or  city,  they  would  have  to  have  their  assurance  from  the  suc- 
cessful party  at  the  polls  in  order  to  meet  vour  objection,  would  they 
not? 

Mr.  Jordan.  They  would  have  to  be  sure  that  the  party  was  going 
to  be  elected.  The}'  would  have  to  work  for  its  election.  I  do  not 
mean  the  bonds  would  be  given  preference. 

Mr.  Crawford.  That  is  to  say,  if  one  party  would  promise  New 
York  that  in  the  event  of  success  it  would  prefer  their  bonds  to  the 
bonds  of  Ohio 

Mr.  Jordan.  I  would  not  say  "  prefer."    I  say  "  accept." 

Mr.  Crawford.  They  could  not  all  be  used,  because  there  would  be 
a  limitation  to  the  amount  of  issue. 

Mr.  Gillespie.  If  I  understand  Mr.  Jordan's  position,  it,  is  this: 
Not  that  there  would  be  any  discrimination,  but  that  all  over  the 
country  there  would  spring  up  advocates  of  the  theory  of  making  a 
bond  market  for  municipal  bonds,  and  that  would  create  a  sort  of 
political  party. 

Mr.  Crawford.  Would  not  that  necessarily  follow  ? 

Mr.  Jordan.  I  say  it  would  follow. 

Mr.  Gillespie.  That  is  his  objection. 

Mr.  Crawford.  But  that  would  not  be  by  reason  of  anj^  sort  of 
suggestion  on  the  part  of  any  party. 

Mr.  Gillespie.  He  does  not  speak  in  any  partisan  sense,  but  of  the 
situation  all  over  the  country.  Now,  I  do  not  know  whether  you 
agree  to  this,  but  now.  regardless  of  party,  there  is  a  strong  political 
movement  in  this  country  for  the  continuance  of  the  present  bond- 
secured  currency  in  order  that  the  Government  may  float  its  securities 
at  a  low  rate. 

Mr.  Jordan.  Yes.  That  is  one  trouble.  Thej''  would  want  to  be 
able  to  market  their  bonds,  and  would  urge  an  increase  of  the  privi- 
lege. The  political  support  of  these  bond-market  advocates  would  be 
sought  by  the  party  leaders. 


62  CURRENCY  LEGISLATION. 

Mr.  Crawford.  Suppose  the  registeir  of  bonds  should  withdraw  the 
bonds  as  security  for  the  notes,  would  the  price  of  those  bonds  in  the 
market  fall? 

Mr.  Jordan.  Yes;  if  the  privilege  were  withdrawn. 

Mr.  Crawford.  The  market  value  would  be  less  ? 

Mr.  Jordan.  Yes. 

Mr.  Crawford.  So  that  the  fact  that  they  are  the  basis  of  the  cur- 
rency gives  them  a  higher  market  value  ? 

Mr.  Jordan.  It  certainly  does. 

Mr.  Crawford.  It  was  intended  for  that,  was  it  not,  primarily? 

Mr.  Jordan.  Not  altogether.  The  idea  originally,  I  think,  was  to 
interest  the  bankers  in  supporting  the  Union  at  the  time  of  the  origi- 
nal national-bank  act.  However,  it  furnishes  the  people  with  the 
cheapest  and  safest  currency  they  can  get.  It  only  costs  the  people 
1^  per  cent  per  annum,  $9,000,000,  to  keep  that  currency  in  circulation. 
It  is  worth  it  to  the  laborer,  miner,  and  farmer,  let  alone  to  the  vast 
business  community.  It  was  established,  primarily,  to  replace  the 
wildcat  asset  currency  then  in  use  by  a  safe  currency. 

Mr.  Crawford.  Do  you  object  to  a  bond-secured  currency? 

Mr.  Jordan.  I  object  to  any  bond-secured  currency  except  as 
against  United  States  Government  bonds. 

Mr.  Crawford.  Why  so  ? 

Mr.  Jordan.  Because  I  think  it  would  become  a  question  of  politics, 
largely.  The  issue  of  United  States  bonds  is  under  the  control  of 
the  National  Government,  and  its  issue,  except  for  the  needs  of  the 
Government,  would  be  severely  criticised. 

Mr.  Crawford.  That  is  what  I  was  trying  to  get  at  a  moment  ago, 
but  r  do  not  see  any  politics  in  it. 

Mr.  Jordan.  It  does  not  necessarily  start  with  it,  but  it  will  result, 
owing  to  the  demand  for  the  privilege  in  order  to  market  the  bonds. 

Mr.  Waldo.  If  I  understand  you,  when  you  say  that  politics  will 
come  in,  what  you  mean  is  that  whatever  party  might  be  in  power, 
in  order  to  keep  itself  in  power,  would  urge  the  acceptance  of  munici- 
pal bonds  from  a  given  part  of  the  country,  and  the  issuance  of  more 
currency  against  it? 

Mr.  Jordan.  Yes;  that  party  would  inflate  the  currency  in  order 
to  create  a  sort  of  boom. 

Mr.  Waldo.  To  create  a  kind  of  sentiment  in  favor  of  the  party 
which  might  be  in  power,  whatever  party  it  was? 

Mr.  Jordan.  That  is  my  idea.  It  would  make  no  difference  what 
party  it  was. 

Mr.  Craavford.  Where  the  result  of  the  election  might  hang  upon 
so-called  pivotal  States,  do  you  think  the  authorities  here,  the  Secre- 
tary of  the  Treasury  and  the  Comptroller  of  the  Currency,  who  have 
the  power  under  the  Aldrich  bill  to  determine  what  bonds  shall  be 
accepted,  and  when,  and  the  value  of  them,  might  promise  those  par- 
ticular States  an  advantage? 

Mr.  Jordan.  I  would  not  say  that  those  officials  would  do  it  of 
their  own  initiative. 

Mr.  Crawford.  They  have  the  power  to  determine  it. 

Mr.  Jordan.  I  rather  think  the  party  in  power  or  their  leaders 
would  have  that  general  understanding. 

Mr.  Crawford.  You  think  that  those  close  States  would  have  the 
preference  in  getting  the  currency  issued,  then? 


CURRENCY    LKGI8LATI0N.  53 

Mr.  Jordan.  Yes,  sir.  I  think  if  there  were  any  preference  to  be 
shown  it  would  be  toward  the  acceptance  of  bonds  from  those  States 
that  were  close  or  favorable  to  the  Administration. 

It  is  a  well-known  fact  to  persons  who  are  posted  in  the  manipu- 
lation of  part}'  leaders  in  several  of  our  States,  that  as  a  matter  of 
policy  the  State  treasury  maintains  a  large  surplus  against  its  debt 
on  which  it  is  paying  interest,  but  which  interest  is  offset  hj  putting 
the  money  out  at  interest  among  banks.  The  deposit  of  the  money 
being  under  the  manipulation  of  the  party  managers,  this  money 
was  loaned  to  banks  throughout  the  State  with  the  understanding 
that  the  banks  will  be  active  and  efficient  in  the  management  of 
politics  in  their  locality,  and  that  the  application  of  the  managers, 
their  friends  and  adherents,  for  loans,  would  be  favorably  considered 
by  these  banks. 

Therefore  a  bill  on  the  line  of  the  Aldrich  bill  would  tend  to 
lead  to  dangerous  inflation,  producing  an  emergency  rather  than  pre- 
venting one.  It  would  be  possible  for  party  leaders  and  their  friends 
who  were  interested  in  a  security  boom,  or  any  other  speculation,  to 
have  the  city,  county,  or  State  in  which  their  influence  was  predomi- 
nant, issue  bonds  and  place  same  with  friendly  banks,  leave  the  pro- 
ceeds on  deposit,  the  banks  obtaining  currency  against  the  bonds,  and 
thus  be  able  to  carry  the  inflation  higher.  The  net  loss  of  2  per 
cent  on  account  of  the  tax  would  not  hinder  as  the  profits  resulting 
from  dealing  in  stocks  would  more  than  offset  such  loss.  As  the 
demand  for  the  currency  would  be  presented  to  the  Secretary  of  the 
Treasury  in  the  light  of  meeting  the  needs  of  business,  it  would 
hardly  be  difficult  to  obtain  the  necessary  consent. 

Mr.  Waldo.  Are  you  connected  with  any  financial  institutions  in 
New  York? 

Mr.  Jordan.  Absolutely  none. 

Mr.  Waldo.  *  *  *  j-f  ^^^Q^e  is  anything  more  that  you  think 
would  be  of  use  to  us,  I  should  like  to  have  it. 

Mr.  Jordan.  I  should  like  to  say  something  about  the  bankers'  bill, 
recommended  by  the  American  Bankers'  Association  at  its  last  meet- 
ing in  Chicago. 

I  am  opposed  to  this  bill  because  I  think  it  would  cause  a  dan- 
gerous inflation.  There  is  a  provision  for  the  daily  redemption  of 
notes  in  specie.  I  do  not  think,  however,  that  it  is  practical  to  put 
their  redemption  system  in  operation.  The  difficulty  of  assorting 
and  sending  in  for  redemption  the  notes  of  over  6,500  national  banks, 
a  number  of  which  would  be  largely  increased  in  case  banks  were 
allowed  to  issue  asset  currency,  would  prevent  their  being  sent  in  for 
redemption.  The  banks  would  sooner  pay  them  out  over  the  counter. 
This  system  works  in  Canada  and  Scotland,  but  there  are  only  35 
banks  which  issue  notes  in  the  former  country  and  11  in  the  latter. 
They  are  branch  banking  systems,  which  are  practically  monopolies. 
The  notes  of  national  banks  were  redeemed  under  an  almost  similar 
system  prior  to  the  establishment  of  the  bureau  of  redemption  at 
Washington,  June  20,  1874.  The  banks  would  not  assort  notes  and 
send  them  to  redemption  agents.  They  paid  them  out  over  the 
counter.     The  sj^stem  failed  and  the  notes  went  to  a  discount. 

(The  committee  thereupon  adjourned  until  Wednesday,  January 
29,  at  10.30  o'clock  a.  m.) 


Committee  on  Banking  and  Currency, 

House  of  Representatives, 
Washington^  D.  6'.,  Wednesday^  January  29,  1908. 

The  committee  met  at  11  o'clock  a.  m. 

Present:  Representatives  Fowler  (chairman),  Prince,  Powers, 
McMorran,  Weems,  McCreary.  Waldo,  Haj-es,  Weeks,  Burton,  Mc- 
Kinney,  Diirey,  Lewis,  Pujo,  Glass,  Gillespie,  James,  Crawford 
and  McHeniy, 

Present  also.  Franlv  Miller,  Esq.,  of  San  Francisco,  Cal. ;  T.  C. 
Daniel,  Esq.,  of  Virginia;  Samuel  Gompers,  Esq.,  and  others. 

The  committee  thereupon  resumed  the  consideration  of  the  various 
measures  before  it  dealing  with  financial  matters. 

The  Chairman.  Is  anybody  here  who  desires  to  be  heard  this  morn- 
ing?   Are  you  gentlemen  here  to  be  heard  or  to  hear? 

Mr.  Frank  Miller.  We  are  anxious  to  hear  from  the  officials  of 
the  Government  first,  if  they  are  going  to  appear  here. 

The  Chairman.  We  have  not  heard  from  them  as  yet. 

STATEMENT  OF  FRANK  MILLER,  ESQ.,  OF  SAN  FRANCISCO,  CAL. 

The  Chairman.  Please  state  your  name. 

Mr.  Miller.  My  name  is  Frank  Miller. 

The  Chairman.  Are  you  a  resident  of  Washington  ? 

Mr.  Miller.  No,  sir;  I  am  living  in  California. 

Mr.  Gillespie.  You  are  from  San  Francisco? 

Mr.  Miller.  San  Francisco,  Cal.  Mr.  Chairman,  and  gentlemen, 
I  have  here  a  pamphlet,  Mdiich  I  think  probabl}^  you  have  already  re- 
ceived. It  is  a  pamphlet  by  Francois  Meunier.  I  have  read  this 
pamphlet  and  simply  want  to  indorse  it.  The  substance  of  it  is  that 
Mr.  Meunier  evidently  recommends  the  grouping  of  all  banks  in  a 
certain  section,  without  regard  to  whether  they  are  State  or  national, 
into  a  corporation;  that  the  corporation  shall  receive  collateral  from 
these  different  banks,  and  upon  that  collateral  this  syndicate,  so  to 
speak,  shall  receive  from  the  Comptroller  of  the  Currency  notes  not 
issued  by  the  United  States,  but  printed  by  the  United  States,  and 
shall  issue  them.  These  notes,  of  course,  are  nonlegal  tender.  They 
shall  not  bear  interest.  They  are  to  become  due  on  a  fixed  date,  and 
on  that  fixed  date  the  money  must  be  paid  into  the  hands  of  the 
United  States  Government  and  shall  remain  there  for  the  redemption 
of  those  notes  after  that  date. 

The  theory  of  the  plan  seems  to  be  that  an  emergency  currency  has 
got  to  be  very  easily  made  and  handled,  and  that  the  best  way  to 
terminate  it  is  to  make  it  payable  at  a  definite  date,  after  which  the 
money  shall  remain  in  the  United  States  Treasury  for  its  redemption. 
That  thereafter  the  notes  will  be  equal  to  Bank  of  England  notes. 

54 


CUEEENCY   LEGISLATION.    -  55 

They  will  change  from  purely  commercial  notes  into  first-class  repre- 
sentative paper. 

The  Chairman.  Does  any  gentleman  of  the  committee  desire  to  ask 
Mr.  Miller  any  question? 

Mr.  Hayes.  I  do  not  know  whether  Mr.  Miller  is  prepared  to  be  in- 
terrogated, but  I  would  like  to  ask  what  is  the  object  of  making  the 
notes  payable  at  a  certain  date?     I  do  not  see  any  object  in  that. 

Mr.  Miller.  Of  course  I  must  express  my  own  opinion,  that  the 
emergency  currency  is  not  to  be  as  enduring  as  a  rock.  The  ultimate 
credit  is  in  it,  and  there  is  always  an  uncertainty  in  it  until  its  pay- 
ment ;  and,  coming  up  against  a  definite  date,  it  is  either  paid  or  dis- 
honored. 

Mr.  Hayes.  But  what  man  is  wise  enough  to  prophesy  when  the 
necessity  for  that  currency  is  going  to  come? 

Mr.  Miller.  These  banks,  I  should  think,  would  habitually  issue 
these  notes  on  three  and  six  months'  dates,  and  probably  they  would 
float  at  par  at  a  three  months'  date.  If  the  banks  required  a  longer 
time  they  would  have  to  issue  them  at  six  months  or  one  year,  and  I 
think  that  pamphlet  prescribes  that  the  usury  laws  shall  not  apply. 
I  have  been  in  the  banking  business,  and  my  theory  is  that  the  banker 
would  stand  almost  any  charge  of  discount  in  order  to  meet  his 
depositors. 

Mr.  Hayes.  Why  not  let  it  be  payable  on  demand,  and  let  the 
necessity  determine  when  it  shall  be  paid  ? 

Mr.  Miller.  Because  when  a  banker  is  short  of  money  he  is  not  in 
need  of  demand  notes. 

STATEMENT  OF  ME.  T.  C.  DANIEL,  OF  VIRGINIA. 

The  Chairman.  Do  you  care  to  be  heard,  Mr.  Daniel? 

Mr.  Daniel.  If  there  is  no  one  else  here  I  think  I  would  like  to 
contribute  something. 

The  Chairman.  Where  are  you  from,  Mr.  Daniel? 

Mr.  Daniel,  I  am  from  Virginia.  I  will  first  state  to  the  com- 
mittee that  I  am  not  interested 

The  Chairman.  You  had  a  good  bank  at  one  time,  before  the  war? 

Mr.  Daniel.  I  have  watched  the  currency  question,  or  the  money 
question,  I  would  say,  for  twenty  years  with  a  good  deal  of  interest ; 
and,  after  reading  pretty  much  everything  that  everybody  else  has 
said  on  the  subject,  I  felt  it  rather  my  duty  to  come  here  and  make  a 
few  contributions  to  the  educational  fund  myself.  Before  doing  so, 
I  will  say  that  I  traveled  a  good  deal  summer  before  last  in  England, 
Ireland,  and  Scotland.  When  I  was  in  London  I  interviewed  the 
Bank  of  England,  and  I  also  made  investigations  in  France;  and 
recently  I  have  returned  from  a  trip  through  Italy.  Having  had 
practical  experience  for  many  years  in  mercantile  life  in  this  country, 
I  was  investigating  conditions  there,  to  see,  b}^  comparison,  whether 
we  could  profitably  imitate  anything  that  they  have  in  the  way  of  a 
banking  system.  But  since  traveling  around  those  countries  I  real- 
ize that  the  best  civilization  the  world  has  ever  known,  and  the  best 
government  the  world  has  ever  known,  is  right  here  in  the  United 
States.  And  the  responsibility  of  the  best  civilization  in  the  world 
rests  upon  the  representatives  of  the  people  in  the  Congress  of  the 
United  States. 


56  -   CURRENCY   LEGISLATION. 

Now,  when  going  through  the  Bank  of  England  I  presented  a 
letter  which  I  had  from  Secretary  Hay,  and  the  official  of  the  bank 
was  very  polite.  He  took  me  through  the  bank,  and  when  we  got 
back  into  the  reception  room  I  asked  him  if  he  would  allow  me  to 
put  a  few  leading  questions  to  him.  He  said  he  would,  and  I  asked 
him  if  he  could  give  me  a  statement  of  the  Bank  of  England.  ''  We 
do  not  issue  any  statements."'  "  Does  not  the  House  of  Parliament 
sometimes  call  on  you  for  some  statement  as  to  the  condition  of  the 
bank?"  "  No,  sir;  they  do  not  call  on  us."  "  How  do  you  regulate 
this  whole  business?  Is  it  a  close  corporation?  "  "  Well,  the  stock- 
holders get  their  dividends  periodically,  and  that  is  all  they  have 
to  do  with  it."  "  How  is  it  that  some  of  these  revolutionists,  so 
called,  do  not  get  up  in  the  House  of  Commons  and  raise  the  devil 
to  know  something  about  what  is  going  on  down  here  ?  That  would 
be  the  condition  in  our  country."  *'  Oh,  most  of  them  are  very  large 
borrowers  from  the  bank,  and  we  do  not  have  any  difficulty  with 
them."     [Laughter.] 

I  tell  3^ou,  with  my  experience  and  observation  of  twenty  years, 
there  is  a  whole  volume  in  that,  through  the  ramification  of  credit. 
Thousands  and  thousands  of  the  best  minds  in  this  country  are  sub- 
servient. You  can  not  find  to-day  five  men  out  of  a  thousand  who 
would  come  up  here  and  express  their  disinterested  opinion.  Why? 
Because  they  are  borrowers. 

Mr.  Gillespie.  Eight  on  that  point,  as  to  the  Bank  of  England, 
Mr.  Daniel,  are  they  not  required  under  the  law  to  make  a  public 
statement  every  week  or  every  two  weeks  in  the  London  Gazette, 
giving  the  condition  of  the  bank? 

Mr.  Dakiel.  Yes,  they  may  be  required  by  law,  but  the  law  is 
like  a  great  many  laws  of  our  country — like  the  Sherman  Act,  which 
was  on  the  statute  book  for  fourteen  years,  and  nobody  took  any 
notice  of  it. 

jSIr.  Gillespie.  But  you  can  take  the  London  Gazette  and  see  a 
statement  of  the  bank  appearing  there  according  to  the  law,  anyhow. 
^Vhether  it  is  a  correct  statement  or  not  of  course  I  do  not  know. 

Mr.  Daxiel.  I  say  that  you  can  not  get  a  true  statement  from 
the  Bank  of  England  to-day  as  to  its  actual  condition  and  who  owns 
the  assets. 

Mr.  Powers.  You  certainly  can  get  a  statement. 

Mr.  Dais'iel.  You  can  get  a  kind  of  a  statement,  but  so  far  as 
finding  out  who  owns  the  assets  of  the  bank  is  concerned 

Mr.  Powers.  It  is  distinctly  a  stock  corporation. 

Mr.  DA^IEL.  Yes;  as  I  say,  it  does  not  affect  them  so  far  as  get- 
ting dividends  is  concerned,  but  they  do  not  know  the  facts  as  to 
the  true  condition  of  the  bank. 

Now,  we  come  down  to  comparing  this  country  with  other  countries 
of  the  world,  and  I  can  not  see  any  reason  why  a  country  that  has 
$117,000,000,000  of  national  wealth,  and  is  creating  about  $3,400,- 
000,000  of  national  wealth  a  year,'  and  which  has  $25,000,000,000 
of  internal  commerce,  should  ever  defer  to  any  other  country  in 
regard  to  establishing  a  money  system.  What  has  impressed  me 
in  this  whole  question  is  this.  The"^  Bankers'  Association  for  several 
years  has  been  meeting  around  the  United  States,  and  I  suppose 


CUBBENCY   LEGISLATION.  57 

there  is  not  a  section  of  the  world  where  men  have  not  been  trying 
to  formulate  something  definite;  but  the  great  difficuhy  seems  to 
be  that  they  do  not  locate  on  a  firm  foundation;  they  do  not  get 
correct  premises,  and  consequently  there  is  no  logical  conclusion 
reached. 

The  money  panic  of  1907  has  brought  the  issue  at  last  squarely 
before  the  American  people.  It  is  no  longer  to  be  hidden  in  sophistry. 
The  old  catch  phrases  of  fiat,  ratio,  parity,  and  bimetallism  versus  the 
gold  standard,  will  no  longer  mystify  the  average  intelligence  of  the 
American  citizen.  They  are  up  against  a  currency  famine  in  the 
most  prosperous  conditions  the  country  has  ever  known. 

Giving  additional  privileges,  in  the  shape  of  class  legislation  of  the 
worst  kind,  to  an  obsolete  national  banking  system,  whose  creation 
was  only  justified  by  the  losses  attendant  upon  a  great  civil  war,  will 
never  be  tolerated  as  being  in  the  interest  of  the  people. 

These  banking  corporations  ever  since  they  made  large  fortunes 
out  of  the  war  debt  have  been  before  Congress  asking  valuable  con- 
cessions in  order  to  perpetuate  their  existence. 

Unfortunately  the  United  States  Treasury  Department  has  become 
a  training  school  for  presidents  and  vice-presidents  of  national  banks ; 
and  unless  something  is  done  to  protect  the  people  they  will  be  so 
merged  as  to  be  practically  in  the  same  business.  The  maxim  of  the 
money  lenders  of  the  Old  World  will  then  be  in  operation :  "  Let  us 
control  the  money  of  a  country  and  we  care  not  who  makes  its  laws." 

This  being  the  case,  it  is  about  time  the  American  people  who  have 
created  and  own  $117,304,211,917  of  the  wealth  of  this  country  should 
be  heard. 

This  question  is  of  such  vital  importance  to  them  that  it  throws 
into  insignificance  any  legislation  that  simply  deals  with  how  the 
banks  are  to  loan  out  $2,876,308,696  in  the  currency  system. 

We  find  in  the  report  of  the  Comptroller  of  the  Currency  at  page  48 : 

Of  the  total  stock  of  money  in  tbe  country  11  per  cent  is  held  in  the  Ti'easnry 
as  assets,  35.51  per  cent  is  in  reporting  banks,  and  53.49  per  cent  elsewhere,  the 
per  capita  not  in  the  Treasury  or  banks  in  1907  being  $19.36  or  $1.03  less  than 
in  1906. 

The  Chairman.  Will  you  repeat  that  last  statement? 

Mr.  Daniel.  "  The  per  capita  not  in  the  Treasury  or  banks  in  1907 
being  $19.36  or  $1.03  less  than  in  1906." 

The  Chairman.  Wliat  do  you  mean  by  saying  "  in  the  banks?  " 

Mr.  Daniel.  I  mean  in  circulation.  The  rest  is  impounded  in  the 
reserves  of  the  banks  and  in  the  Treasury  Department. 

The  Chairman.  You  do  not  mean  by  that  the  deposits? 

Mr.  Daniel.  Well,  it  is  a  very  plain  statement  from  the  Comp- 
troller of  the  Currency.    I  do  not  want  to  alter  his  language. 

The  Chairman.  But  I  thought  that  as  you  used  the  expression 
you  might  define  itl 

Mr.  Daniel.  I  can  define  it  from  being  perfectly  familiar  with  it. 
That  is  the  actual  amount  of  money  that  is  doing  the  work,  or  the 
money  in  circulation  in  the  country. 

Mr.  Crawford.  You  speak  of  the  actual  mone}',  and  not  of  the 
deposits  ? 

Mr.  Daniel.  Yes. 

In  other  words,  only  $1,679,853,760  is  in  circulation  and  doing  the 
work  of  monev. 


58 


CURREN-CY  LEGISLATION. 


The  question  is  now  asked  by  over  86,000,000  people  in  this  country, 
with  no  uncertain  sound,  How  is  the  Congress  of  the  United  States, 
to  whom  we  have  delegated  the  authority,  going  to  supply  this  need 
of  a  permanent  addition  of  real  money  to  our  currency  system?  No 
other  power  has  a  right  to  obligate  the  people,  no  other  power  can 
issue  a  perfect  mone,y  unit,  a  legal-tender  dollar,  the  ultimate  of  pay- 
ment. The  money  issued  by  the  authority  of  Congress  under  the 
Constitution  of  the  United  States,  exercising  its  sovereign  power, 
derived  from  the  86,666,000  people  of  this  country,  is  not  only  redeem- 
able in  everything  owned  by  them,  but  a  legal  tender  for  all  debts, 
public  and  private,  estimated  at  many  billions. 

It  is  only  necessary  to  realize  the  above  facts  to  see  how  essentially 
the  people  are  interested  in  the  money  question.  It  directly  and 
individually  affects  ever}'  citizen,  from  the  lowest  to  the  highest, 
every  dollar  representing  the  plighted  faith  of  the  poorest  and  the 
richest,  one  to  accept  it  for  his  property  and  debts  due  him,  the  other 
for  his  daily  toil. 

This  being  the  case,  and  the  inventory  of  the  national  wealth  of  the 
people  of  the  United  States  being  taken,  I  ask  if  any  country  or 
people  can  issue  as  good  a  dollar  or  money  unit,  with  as  much  back  of 
it,  as  the  Congress  of  the  United  States  can,  having  full  power 
under  the  Constitution  to  obligate  the  entire  national  wealth  of 
$117,304,211,917  for  its  redemption,  as  well  as  the  life  work  and 
services  of  the  population  of  86,666,000,  the  most  robust,  enterprising, 
and  productive  people  known  to  civilization,  their  homes  and  prop- 
erty being  in  a  countrj^  described  by  Gladstone  "  as  having  the  natural 
base  of  the  greatest  continuing  empire  the  world  has  ever  known," 
and  producing  everything  necessary  to  the  human  family. 

Now.  I  have  a  summary  here  of  the  gold  coin  and  bullion  imported 
and  exported  in  the  years  ended  June  30,  1900  to  1906. 

Oold  coin  and  huUion  imported  and  exported  years  ended  June  30,  1900  to  1906. 


1900. 

1901. 

1902. 

1903. 

1904. 

1905. 

1906. 

Imported 

Exported 

$44,573,184 
48,266,759 

$66,051,187 
53,185,177 

$52,021,254 
48,568,950 

$44,982,027 
47,090,595 

$99,955,368 
81,459,986 

$53,648,961 
92,594,024 

$96,221,730 
38,5^,591 

Gold  production.  United  States,  for  years  as  follows : 


1004 $S0,  464,  700 

3905 88, 180,  700 

1906 94,  373,  800 


1900 $79, 171,  000 

1901 78,  666,  600 

1902 80,  000,  000 

1903 •— _  73,  591,  700 

This  table  will  show  that  gold,  so  far  as  international  exchange 
or  trade  is  concerned,  takes  care  of  itself,  as  the  difference  between 
imports  and  exports  is  only  $47,694,629  covering-  a  period  of  seven 
years,  and  the  United  States  produced  during  this  time  $574,448,500, 
or  annually  $82,064,071. 

On  page  3,  Statistical  Record,  Department  of  Commerce  and  Labor, 
under  the  head  of  "  Money  in  circulation  " — I  call  special  attention  to 
it — is  the  following: 

"  1897.  Gold  in  circulation,  $517,589,688." 

"July  1,  1907.  Gold  in  circulation,  $561,697,371  "—only  an  addi- 
tion in  ten  years  of  $44,107,683,  or  an  average  of  $4,410,768  per  year. 


CUKRENCY   LEGISLATION.  59 

Now,  look  at  this  contrast.  During  this  time  the  national  wealth 
Df  the  United  States  has  increased  over  $28,000,000,000,  as  shown  by 
the  report  of  the  Department  of  Commerce  and  Labor  for  1907 : 

It  is  the  total  quantity  of  money  iu  circulation  in  any  country  which  deter- 
mines what  portion  of  that  quantity  shall  exchange  for  a  certain  portion  of  the 
goods  or  commodities  of  that  country.  It  is  the  proportion  between  the  circu- 
lating money  and  the  commodities  in  the  market  which  determines  the  price. 

The  Chairman.  Mr.  Daniel.  I  would  like  to  say  this:  We  have 
$34  per  capita,  and  Canada  has  $19  per  capita.  Is  there  that  much 
difference  in  the  price  of  commodities  in  the  two  countries? 

Mr.  Daniel.  But  you  have  not  that  much  here.  It  is  tied  up.  Only 
$19.36  in  circulation. 

The  Chairman.  But  Canada  has  not  got  $19  among  the  people. 
Canada's  total  circulation,  all  they  have  out,  is  only  $19  per  capita, 
and  that  includes  their  reserves,  and  what  is  in  the  treasury  of  the 
Dominion,  and  all.  I  think  they  have  $10  or  $15  in  circulation  up  in 
Canada,  and  we  have  $20.  How  do  you  account  for  the  prices  across 
the  line  up  here  being  the  same? 

Mr.  Daniel.  If  you  will  make  a  memorandum  of  that,  I  will  come 
back  to  it. 

The  Chairman.  I  would  like  to  ask  another  question,  and  you  can 
answer  them  both  at  the  same  time.  In  Belgium  they  have  about 
$9  per  capita  and  in  France  $35. 

Mr.  Daniel.  France  has  $40. 

The  Chairman.  That  is  so  much  the  better. 

Mr.  Daniel.  I  am  familiar  with  all  those  facts. 

The  Chair3ian.  I  just  wanted  to  call  your  attention  to  that. 

Mr.  McKiNNEY.  In  Alaska  they  have  a  circulation  equal  to  that 
in  the  rest  of  the  country,  and  the  prices  there  are  tremendous. 

Mr.  Daniel.  A  simple  statement  of  fact  is  enough  to  show  that  the 
gold  in  our  money  system  is  no  longer  the  standard  by  which  the 
tremendous  wealth  of  the  country  is  measured.  The  so-called  gold 
standard  is  a  mere  fiction  of  the  mind,  a  pretext  for  banking  systems 
to  issue  credit  money  on. 

The  following  paragraph  from  the  report  of  the  Secretary  of  Agri- 
culture suggests  a  comparison : 

The  grand  total  for  1907  is  $7,412,000,000.  This  is  $657,000,000  above  the 
value  of  1906.  During  the  last  nine  years  wealth  was  created  on  farms  in  the 
United  States  to  the  fabulous  amount  of  $53,000,000,000. 

This  would  buy  the  whole  stock  of  gold  in  the  monetary  systems 
of  the  world,  December  31,  1906,  as  estimated  by  the  Director  of  the 
Mint,  as  follows : 

In  banks  and  public  treasuries $3,764,900,000 

In  circulation 3, 124,  000,  000 

It  will  be  seen  that  the  value  of  one  year's  products  of  agriculture, 
$7,412,000,000,  in  the  United  States,  is  more  than  all  the  gold  money 
of  the  world. 

The  gold  outside  of  the  currency  system  has  no  effect  upon  the 
value  of  other  property,  and  therefore  should  not  be  considered. 

The  value  of  money  in  any  country  is  determined  by  the  amount  existing. 
That  commodities  would  rise  or  fall  in  price  in  proportion  to  the  increase  or 
diminution  of  money  I  assume  as  a  fact  that  is  incontrovertible. 

This  economic  truth  is  now  so  plain  that  he  who  runs  may  read. 
What  then  becomes  of  this  mere  fiction  of  the  mind,  that  gold  is  the 


60 


CURRENCY    LEGISLATION. 


standard  of  value  of  other  things  in  this  country?  In  other  words, 
how  can  only  $1,489,742,845  of  gold  in  our  currency  system,  contain- 
ing $2,876,368,696,  constitute  the  standard  of  values?  Anyone  with 
ordinary  intelligence  knows  that  if  you  were  to  retire  the  other  kinds 
of  currency  in  our  present  monetary  system  prices  of  all  other  kinds 
of  property  would  experience  a  tremendous  fall. 

The  relative  importance  of  the  value  of  gold  and  the  value  of  other 
property  is  as  follows:  Total  value  of  gold  money  in  the  United 
States  November  1,  1907,  $1,489,742,845.  Value  of  other  property, 
$117,304,211,917.  Annual  average  production  of  gold  in  the  United 
States,  $83,000,000.  Annual  average  production  of  value  of  other 
property,  $3,400,000,000. 

Page  89,  Report  of  the  Director  of  the  Mint :  The  coinage  of  gold 
of  the  mints  of  the  world,  outside  of  the  United  States,  from  1900  to 
1906,  when  figured  out,  averaged  only  $211,312,448  a  year. 

The  balance  of  trade  due  the  United  States  by  the  outside  world 
in  1907  amounts  to  $446,489,653,  which  would  buy  their  total  coinage 
of  gold  and  leave  them  still  in  debt  to  us  $235,177,205  a  j^ear. 

To  show  the  relative  importance  of  our  internal  commerce  and  our 
foreign  trade,  I  would  call  especial  attention  to  a  report  from  the 
Department  of  Commerce  and  Labor  dated  December  14,  1907,  as 
follows : 

Internal  commerce,  United  States,  1907  (estimated) $25,000,000,000 

Domestic  exports,  fiscal  year  ending  June  30,  1907_' 1,  854,  000,  000 

The  above  comparison  is  made  to  clarify  this  subject,  as  our  states- 
men and  business  men  have  attached  so  much  importance  to  this  in- 
ternational trade  or  foreign  commerce  idea  that  they  seem  to  think 
the  whole  American  system  must  be  made  to  conform  to  it.  It  is  a- 
case  of  looking  so  hard  at  the  fly  on  the  barn  door  that  we  can  not 
see  the  barn  door,  or  of  the  tail  wagging  the  dog. 

To  emphasize  this  fact,  compare  the  relative  positions  financially 
of  these  countries  and  the  United  States,  and  ask  which  should  domi- 
nate the  future  business  of  the  world. 


1901-5. 

Population. 

National  debt. 

Per 

capita 
debt. 

Great  Britain 

43,217,687 
38,961,950 
33,476,120 

$6,196,038,685 
6,963,953,193 
2,490,955,026 

$139.52 
172  48 

France.    

Italy 

79  93 

Page  218,  Special  Report  of  the  Census,  1907 : 

Measured  by  national  wealth,  or  the  ability  to  raise  revenue,  the  public  debt 
of  the  United  States  is  only  27.1  per  cent  of  that  of  Great  Britain,  20  per  cent 
of  that  of  France,  and  16.4  per  cent  of  that  of  Italy. 

Page  2,  Statistical  Record,  Department  of  Commerce  and  Labor: 
1904.  National  wealth  of  United  Stales !j;i07, 104,  211,  917 

Page  33,  Special  Report  Census : 
Estimated  Increase  to  1907 : 10,200,000,000 

Total  to  1907 ■_     117,304,211,917 

1907.  Internal  commerce  annually 25,000,000,000 


CURRENCY  LEGISLATION.  61 


Population. 

National  debt. 

Per 

capita 
debt. 

1907. - — -. 

85,593,303 

$878,596,755.03 

$10.20 

We  find  the  following  statement  on  page  33,  Special  Report  of  the 
Census,  1907: 

Without  financial  pauics  or  other  disturbing  factors,  the  figures  reviewed 
would  indicate  that  the  census  estimate  for  1910  if  taken  on  substantially  the 
same  basis  as  the  estimate  for  1890-1900,  and  1904  will  show  an  annual  average 
per  capita  accumulation  of  wealth  from  1904  to  1910  of  not  far  from  $40. 

This  would  amount  to  $3,400,000,000  annually. 

The  taxpayers  and  those  producing  this  wealth  would  like  their 
representatives  in  Congress,  to  whom  they  pay  annually  an  aggregate 
of  $3,585,000  for  their  services,  to  study  this  statement  and  give  them 
an  American  money  system  made  up  of  real  dollars  as  authorized  by 
the  Constitution,  regardless  of  any  other  country  on  earth,  and  not  in 
the  interest  of  short-sighted  banking  associations  who  desire  to  handle 
the  money  of  the  country  and  control  it  as  far  as  possible  in  order  to 
make  the  most  money  out  of  it  for  themselves.  I  hardly  think  their 
best  friends  would  call  them  philanthropists,  running  banks  in  the 
interest  of  the  people. 

On  the  other  hand,  Congress  is  paid  by  the  people  to  look  after 
their  interests  and  not  the  interests  of  banking  associations.  Thus 
the  question  becomes  an  individual  responsibility  upon  every  repre- 
sentative of  the  people  in  Congress,  and  not  a  matter  to  be  settled  by  a 
few  men  on  the  Finance  Committee  of  the  Senate  in  consultation  with 
banking  associations. 

What  the  people  expect  of  Congress  is  a  permanent  increase  of  full 
legal-tender  dollars  to  sustain  $117,304,211,917  of  national  wealth 
produced  by  them,  and  to  carry  on  $25,000,000,000  of  internal  com- 
merce. Thev  fully  realize  that  a  crazy-quilt  currency  made  up  of 
$1,489,742,845  of  gold,  and  only  $574,459,080  of  that  in  circulation  as 
real  mone3%  and  the  balance  of  $1,386,625,851  in  outstanding  obliga- 
tions redeemable  in  gold,  can  no  longer  support  the  tremendous  devel- 
opment of  this  coimtry.  It  is  a  condition  and  not  a  theor}^  that  now 
confronts  the  owners  and  producers  of  wealth  in  this  country,  and  the 
dominant  party  that  shirks  the  issue  will  be  held  responsible  for  the 
results. 

To  demonstrate  the  actual  necessity  of  this,  the  following  condi- 
tions are  set  forth  :  The  total  amount  of  monev  of  all  kinds  in  the  cur- 
rency sysem  of  the  United  States  November  1, 1907,  was  $2,876,368,696, 
a  little  over  2  per  cent  of  the  national  wealth  of  $117,304,211,917,  the 
value  of  which  it  is  expected  to  measure  and  sustain  as  well  as  carry 
on  $25,000,000,000  of  internal  commerce;  and,  in  addition,  measure 
and  support  the  value  of  the  immense  issues  of  bonds  and  stocks  of 
the  corporations  of  the  United  States.  Those  under  the  head  of 
"  Industrials "  alone,  listed  on  the  New  York  Stock  xchange.  and 
not  including  railroads,  amount  to  over  $8,000,200,941.  Those 
issued  on  the  steam  railroads  are  estimated  at  14,765,178,704, 
making  a  total  of  $22,966,119,704.  This  does  not  include  the  innu- 
merable corporations  issuing  bonds  and  stocks  throughout  the  United 
States.     In  addition  to  the  above  we  have  the  following  demands 


62  CURRENCY   LEGISLATION. 

upon  this  stock  of  money  from  the  depositors  of  same  in  national 
banks,  trust  companies,  and  savings  banks  in  the  United  States,  as 
per  last  report  of  the  Comptroller  of  the  Currency  for  1907,  amount- 
ing to  $13,099,635,348.  This  does  not  include  deposits  in  building  and 
loan  associations. 

It  would  be  easier  for  a  sensible  man  to  believe  all  the  tales  of  the 
Arabian  Nights  than  to  think  that  $2,869,074,255  of  money  (and  by 
construction  of  the  Secretary  of  the  Treasury,  about  one-half  of  that 
only  promises  to  pay  another  kind  of  money)  can  any  longer  carry  on 
the  business  of  this  country  and  sustain  values. 

Based  upon  the  $40  per  capita  of  France,  a  country'  that  has  not 
half  the  need,  demand,  or  wealth  to  redeem  her  money  in  as  the  United 
States,  3^et  the  only  country  in  the  world  free  of  panics,  we  should 
have  based  upon  our  present  population,  December  1.  1907  (86,- 
666,000),  $3,466,640,000.  or  an  increase  of  $590,271,304  in  our  cur- 
rency sj^stem. 

The  taxpayers  now  ask  their  representatives  in  Congress  to  get 
together  and  give  them  a  plain  square  deal  on  this  money  question 
stripped  of  all  its  sophistry,  and  to  settle  it  right  and  allow  the  legit- 
imate business  of  the  country  to  go  on  uninterrupted  by  speculations 
in  stocks  and  bonds  by  the  nonproducers  in  the  stock  exchanges,  in 
conjunction  with  the  banks  in  the  large  cities. 

The  power  to  create  money  rests  entirely  with  Congress  as  placed 
there  by  the  people,  and  if  the  people  are  responsible  for  these  dollars 
they  want  them  issued  direct,  as  perfect  money  units,  and  not  in- 
directly as  promises  to  pay  through  banking  associations  with  the 
right  to  retire  them  whenever  they  find  it  profitable  to  do  so. 

After  the  present  painful  experience  they  are  opposed  to  having 
this  power  to  issue  currency  turned  over  to  any  system  controlled  by 
money  lenders  and  capable  of  being  used  as  an  india-rubber  money, 
under  the  attractive  title  of  an  elastic  currency.    [Laughter.] 

This  country  has  not  stopped  growing  nor  has  it  exhausted  its 
boundless  resources.  AA^iat  the  people  want  is  more  money  perrtia- 
nently  in  the  currency  system,  to  be  steadily  increased  as  wealth  ac- 
cumulates and  the  population  increases,  and  not  an  emergency, 
elastic,  or  champagne  circulation  to  bring  about  a  tipsy  prosperity, 
so  enjoj^ed  by  frenzied  financiers,  who  make  fortunes  on  paper  and 
add  nothing  to  the  national  wealth,  yet  coming  to  a  sudden  end  at 
any  time  and  absolutely  stopping  the  progress  and  prosperity  of  the 
whole  country  (now  adding  to  its  wealth  $3,400,000,000  a  year). 

In  opposition  we  hear  men,  calling  themselves  statesmen,  hiding 
their  assumed  ignorance  behind  such  expressions  as  "  We  must  not 
issue  '  fiat  money ' " — a  term  without  meaning  when  applied  to  the 
material  question  of  an  American  dollar  issued  %  the  sovereign  power 
of  the  United  States  with  $117,304,211,917  of  national  wealth  owned 
by  the  people,  who  are  adding  to  the  same  at  the  rate  of  $3,400,000,000 
a  year,  and  doing  $25,000,000,000  Avorth  of  internal  commerce  annu- 
ally, pledged  to  redeem  them,  every  dollar  being  a  universal  order  on 
all  things  on  sale,  all  services  for  hire,  and  the  ultimate  of  payment  for 
all  debts  in  the  United  States.  Is  there  a  sensible  man  in  this  the 
twentieth  century  who  will  stand  up  in  the  American  Congress  and 
say  that  he  would  rather  have  a  promise  to  pay  a  dollar  issued  by  a 
bank,  secured  upon  a  segregated  asset  of  a  corporation,  called  a  bond, 
than  a  full  legal-tender  dollar  redeemable  in  all  the  property  of  the 


CUERENCY   LEGISLATION.  63 

people  of  the  United  States?  If  a  full  legal-tender  American  dollar 
is  called  "  fiat  money,"  by  a  parity  of  reasoning  the  same  statesman 
would  call  a  United  States  Government  bond  a  fiat  creation,  although 
both  have  squarely  back  of  them  all  the  assets  of  the  United  States  and 
the  plighted  faith  of  the  American  people.  Any  man  calling  himself 
a  statesman  who  can  not  rise  above  politics  on  such  a  vital  question, 
but  who  resorts  to  sophistry  and  subterfuge,  would  properly  belong 
to  the  class  characterized  by  Adam  Smith,  "  That  insidious  and  crafty 
animal,  vulgarly  called  a  statesman,  or  politician,  whose  councils  are 
directed  by  the  momentary  fluctuations  of  affairs;"  or  described  by 
Buckle,  "  Such  men  are  at  best  only  the  creatures  of  the  age,  never  its 
creators ;  their  measures  are  the  result  of  social  progress,  not  the  cause 
of  it." 

Mr.  Weeks.  It  was  suggested  that  it  was  desirable  to  hear  from 
men  of  all  classes  on  this  question — not  bankers  alone,  but  other  busi- 
ness men — and  I  would  like  to  ask  Mr.  Daniel  what  his  business  is  ? 

Mr.  Daniel.  If  you  will  allow  me  to  be  a  little  personal,  I  will  say 
that  I  started  out,  after  the  war,  from  Fredericksburg,  Va.  I  lived  in 
New  York  for  quite  a  time  and  also  traveled  as  general  salesman 
for  one  of  the  largest  commercial  houses  there — Tefft,  Weller  &  Co. — 
who  did  a  business  of  $15,000,000  a  year.  In  looking  over  the  situ- 
ation, always  keeping  this  money  question  before  me,  I  came  to  the 
conclusion  that  the  best  way  to  make  money  was  to  buy  some  cheap 
property  near  the  capital  of  the  United  States  and  let  its  growth 
enhance  its  value.  For  about  twenty  years  I  have  been  in  Wash- 
.  ington,  and  I  have  now  arrived  at  a  point  where  the  increase  in  the 
value  of  my  property  is  sufficient  to  enable  me  to  pay  some  attention 
to  the  interests  of  the  people,  at  large. 

Mr.  Weeks.  You  are  a  capitalist,  then  ? 

Mr.  Daniel.  I  do  not  claim  to  be  a  capitalist  because  I  do  not 
want  to  arrogate  to  myself  any  of  the  qualities  that  go  along  with 
that  position. 

Mr.  Weeks.  You  belong  to  the  leisure  class  of  the  United  States? 

Mr.  Daniel.  No,  sir;  I  am  in  the  real  estate  business,  and  I  have 
been,  and  am  right  now,  in  touch  with  pretty  much  everything  that 
is  going  on. 

That  is  all  I  have  to  say.  I  have  no  interest  in  this  matter  beyond 
the  fact  that  there  are  80,000,000  people  in  this  country  who  have 
a  great  deal  of  property  and  who  are  working  very  hard  for  it,  and 
they  have  built  up  a  civilization.  They  have  more  wealth  than  all 
the  rest  of  the  world  practically  put  together,  and  it  is  time  that 
they  should  have  something  to  say  about  the  question.  I  am  simply 
presenting  a  brief  in  their  interest. 

Mr.  Gillespie.  Have  you  any  remedy  that  you  can  suggest? 

Mr.  Daniel.  Yes,  I  have;  but  I  do  not  think  it  is  time  to  promul- 
gate it  yet. 

Mr.  Crawford.  Your  suggestion  is  to  increase  the  circulating 
medium  by  the  issue  of  legal  tender  greenbacks? 

Mr.  Daniel.  I  have  stated  it  plainly.  We  want  real  money.  Do 
not  disturb  present  conditions,  but  put  more  real  money  in  circula- 
tion. 

The  Chairman.  What  do  you  mean  by  real  money — United  States 
notes  ? 


64  CURRENCY   LEGISLATION. 

Mr.  Daniel.  I  mean  the  actual  money. 

The  Chairman.  United  States  notes? 

Mr.  Daniel.  It  can  not  be  anything  else.  Under  the  Constitution 
of  the  United  States  you  can  only  issue  one  kind. 

Mr.  Crawford.  Do  you  think,  with  a  gold  reserve  in  the  Treas- 
ury amounting  to  a  total  of  three  hundred  and  forty-six  millions, 
that  it  would  stay  at  par  ? 

Mr.  Daniel.  It  would  have  no  effect  on  it  at  all. 

Mr.  Gillespie.  Do  you  mean  to  issue  United  States  notes,  making 
them  irredeemable,  or  redeemable  in  gold,  or  how  ? 

Mr.  Daniel.  When  you  put  out  a  perfect  circulation  unit  in  the 
country,  it  is  not  supposed  to  be  a  tiling  that  is  retired.  It  circulates 
and  stays  out. 

Mr.  Gillespie.  I  wanted  to  know  if  that  was  your  idea — the  issu- 
ing of  irredeemable  paper  money  by  the  Government? 

Mr.  Daniel.  Not  irredeemable  money,  but  redeemable  in  every- 
thing, backed  by  the  national  assets  of  the  Government  and  people. 

]\Ir.  Gillespie.  But  if  it  is  not  redeemable,  why  have  assets  back 
of  it? 

Mr.  Daniel.  For  instance,  when  the  Congress  of  the  United  States, 
representing  the  American  people,  isues  a  dollar,  it  is  by  my  consent 
that  I  take  it  in  paj^ment  for  any  property  I  have  or  in  payment  for 
any  service  I  render,  and  it  is  a  thing  that  the  American  people 
accept  and  agree  to  redeem  not  only  now,  but  for  all  time.  That  is 
a  perfect  money  unit. 

Mr.  Waldo.  You  have  got  to  have  it  redeemable  in  gold,  though. 

Mr.  Daniel.  Not  redeemable  in  any  one  thing,  but  everything. 

Mr.  Waldo.  I  mean  to  do  business  with  any  other  country  on  a 
gold  basis. 

Mr.  Daniel.  We  do  not  need  that.  We  have  only  had  a  differ- 
ence of  about  forty-seven  millions  in  seven  years  in  exports  and  im- 
ports of  gold. 

Mr.  Waldo.  But  you  have  got  to  fix  that  some  way,  have  you  not  ? 

Mr.  Daniel.  I  am  glad  you  have  asked  that  question.  Wlien  I 
was  in  England  I  went  down,  for  instance,  to  the  Morgan  bank,  and 
I  handed  in  a  $100  American  silver  certificate  or  Treasury  note,  and  I 
got  a  premium  on  it — something  like  $1.50  or  $1.75.  I  went  over  to 
Belfast  and  bought  $175  worth  of  linen  there.  I  handed  my  money 
into  the  bank  at  Belfast  and  got  a  premium  on  it.  Last  summer  I 
was  over  in  Italy,  and  they  are  crazy  after  American  monej'.  They 
will  tell  you  it  is  the  best  money  in  the  world.  They  do  not  question 
it  for  an  instant.  Why,  the  influence  of  this  country  to-day  is  the 
most  potential  in  the  world,  as  demonstrated  bj^  the  fact  that  they 
are  paying  us  a  premium  on  money  right  along  without  regard  to 
whether  it  is  gold  or  silver.  Why  do  they  need  it?  They  need 
$440,000,000  of  it  to  settle  the  balance  of  trade  with  us  every  year. 
They  need  it  to  pay  for  $1,854,000,000  of  stuff — necessaries  of  life, 
most  of  it.    They  can  not  get  along  without  it. 

I  stopped  off  at  the  Straits  of  Gibraltar  and  got  all  my  foreign 
money  changed  into  American  money,  and  of  course  to  get  American 
money  I  had  to  sacrifice  quite  a  discount.  The  fellow  gave  me  a 
whole  lot  of  nickels.  A  party  got  on  at  Gibraltar  with  a  lot  of 
grapes.  Two  or  three  Spaniards  were  standing  around,  and  I  took, 
out  five  of  these  nickels  and  handed  them  out  for  the  grapes.    This 


CURRENCY   LEGISLATION.  65 

fellow  looked  at  it  for  a  while  and  turned  around  to  his  partner  and 
said,  "What  about  that?"  The  fellow  said,  "That  is  American 
money ;  the  best  money  in  the  world." 

That  is  the  universal  thought.  Why?  Because  we  have  $117,- 
000,000,000  of  national  wealth,  with  the  b(«t  things  in  God's  world 
to  reinvest  the  money  in.  Railroad  bonds  and  everything  are  here  to 
redeem  it  in  this  country ;  as  good  as  can  be  found  anywhere. 

Mr.  Weeks.  Did  you  say  you  v;ere  paid  a  premium  on  American, 
money  ? 

Mr.  Daniel.  Yes. 

Mr.  Weeks.  Where? 

Mr.  Daniel.  In  London  and  in  Belfast. 

Mr.  Weeks.  Who  paid  it? 

Mr.  Daniel.  Cook  paid  it  in  Belfast  and  the  Morgan  bank  paid  it 
in  London. 

Mr.  Weeks.  How  much  premium  were  you  paid  ? 

Mr.  Daniel.  I  think  I  got  6  shillings  on  the  $100.  That  was  about 
$1  and 


Mr.  Weeks.  Was  that  in  gold  or  bank  notes? 

Mr.  Daniel.  Both.    Most  of  it  was  in  gold. 

Mr.  Weeks.  The  payment  was  made  indiscriminately? 

Mr.  Daniel.  Yes. 

Mr.  Weeks.  And  a  premium  was  paid  on  it? 

Mr.  Daniel.  Yes. 

The  Chairman.  In  London  ? 

Mr.  Daniel.  In  London.  I  tell  you  it  is  a  fact  that  there  is  some 
exaggeration  about  that  idea  of  gold  being  the  necessary  thing.  It 
took  me  a  long  time  to  reach  this  conclusion.  I  was  timid  for  four 
or  fi\e  years  about  taking  this  position,  but  I  find  that  I  can  not,  as  a 
sensible  man,  take  any  other  position. 

The  Chairman.  Is  any  other  gentleman  to  be  heard  to-day? 

Mr.  Daniel.  I  want  to  say,  gentlemen,  that  I  am  very  much 
obliged  to  you  for  the  opportunity  of  being  heard.  I  thought  I  had 
better  come  before  you,  as  so  few  people  do  come.  I  want  to  com- 
pliment any  man  who  has  given  time  and  thought  to  this  subject, 
because  few  people  have;  but  it  is  such  an  important  thing  that  it  is 
high  time  the  American  people  should  take  it  up  and  thrash  it  out. 

The  United  States  Government  should  kindly  request  the  banking 
corporations  to  cease  to  occupy  the  middle  of  the  economic  or  busi- 
ness stage  of  this  country.  The  power  to  issue  money  is  a  sovereign 
function  of  government  and  through  money  the  value  of  trade,  com- 
merce, and  property  is  regulated.  It  is  therefore  of  the  first  impor- 
tance that  banking  corporations  should  be  confined  to  their  legiti- 
mate business  as  lenders  of  money  owned  by  their  depositors  and  not 
be  allowed  to  control  the  measuring  medium  of  property. 

The  Constitution  of  the  United  States  does  not  contemplate  the 
Government  going  into  the  banking  business  to  loan  money  to  indi- 
viduals or  corporations,  or  that  the  banks  should  ever  go  into  the 
governing  business  by  issuing  or  controlling  the  supply  of  money 
and  regulating  the  affairs  of  the  country.  It  is  plain  from  the  action 
of  the  banks  in  the  panic  of  October,  1907,  that  they  need  no  guar- 
dian to  look  after  their  interest.  They  simply  stopped  payin^  their 
depositors,  issued  them  clearing  house  certificates  and  scrip,  held  and 
hoarded  all  the  money  of  any  kind  the}^  could  obtain.  They  ceased. 
37381—08 5* 


66  CURRENCY   LEGISLATION. 

to  make  loans,  but  demanded  money  on  the  loans  outstanding,  and 
asked  larger  curtails  on  negotiable  notes  with  renewals  for  only 
thirty  daj'S  and  increased  the  rate  of  interest  on  call  and  time  loans. 
The  effect  being  to  instantaneously  stop  the  progress  of  business, 
causing  infinite  distress  and  irreparable  loss  throughout  the  country. 
Thus  the  magnificent  procession  of  business  is  stopped,  its  step  re- 
versed, depression  takes  the  place  of  prosperity. 

Not  being  able  to  use  the  old  excuse  of  the  country  being  over- 
stocked, as  the  cause  of  this  panic,  the  wiseacre  economists,  getting 
their  wisdom  from  the  superficial  financiers,  say  we  have  overtraded^ 
The  fact  is  well  known  that  the  demand  for  everything,  as  well  as 
money,  is  beyond  the  supply.  Such  a  prosperous  condition  in  the 
country  generally  is  the  underlying  reason  for  the  people  standing 
the  strain  as  well  as  they  have. 

In  the  meantime  money  goes  up  in  value,  causing  a  great  depres- 
sion in  the  value  of  other  property,  thus  putting  those  in  possession 
of  money  in  2:)osition  to  take  advantage  of  the  misfortune  of  others. 
It  is  an  open  secret  that  the  funds  of  most  of  the  banks  in  the  large 
cities  are  controlled  by  inside  rings,  composed  of  officers  of  the  banks, 
who  farm  out  the  money  to  the  best  advantage  to  themselves  as  well 
as  that  of  the  banks.  While  the  hoarding  process  goes  on  the  little 
interest  lost  in  dividends  to  the  stockholders  does  not  amount  to  a 
drop  in  the  bucket  compared  to  the  immense  profits  made  by  these 
men  out  of  forced  sales  that  they  take  advantage  of. 

The  effect  of  this  fall  of  prices  upon  the  whole  country  is  a  hun- 
dred per  cent  w^orse  than  the  immediate  loss.  It  is  human  nature  to 
hold  on  to  the  thing  that  is  going  up  in  value — money — and  let  go  of 
the  things  that  are  consequently  going  down ;  this  intensifies  the  situ- 
ation, making  the  inadequate  supply  of  money  that  causes  the  panic 
scarcer  still. 

Superficial  observers  complain  during  this  condition  that  the  peo- 
ple are  hoarding  their  money.  As  a  matter  of  fact,  in  the  present 
panic  the  Comptroller  of  the  Currency  in  his  last  report  states  that 
the  banks  are  doing  most  of  the  hoarding. 

There  never  was  a  panic  that  hurt  the  owners  or  controllers  of 
money;  such  conditions  are  a  harvest  for  them  and  offer  a  premium 
on  money  (and  meanness).  The  only  cure  for  this  condition  is  an 
adequate  addition  of  money — so  as  to  arrest  the  general  fall  of  prices; 
as  soon  as  this  is  done  money  will  seek  employment. 

If  the  business  of  a  country  develops  and  commodities  increase,  and 
the  amount  of  money  remains  the  same,  it  is  contraction  in  the  worst 
form,  because  to  take  care  of  the  increase  of  property  and  wealth  a 
credit  system  of  promises  to  pay,  checks,  etc.,  is  built  up  so  high  that 
it  is  obliged  to  break  down  for  the  want  of  a  broader  foundation  or 
more  money  to  sustain  it. 

The  United  States  should  steadily  increase  in  business  and  wealth, 
as  its  resources  are  practically  unlimited  and  supply  everything 
necessary  to  the  human  family.  It  can  therefore  be  stated  as  an 
economic  fact  that  a  scarcity  of  money  in  such  a  country  will  always 
cause  panics,  while  a  sufficient  amount  of  money  to  keep  pace  with  its 
growth,  increase  of  wealth  and  population  will  bring  a  prosperity 
that  will  continue  indefinitely. 

If  purchasing  power  was  commensurate  with  the  productive  power 
of  the  people  of  this  country  we  would  have  a  continuous  prosperity 


CURRENCY    LEGISLATION.  67 

and  an  increase  of  national  wealth  that  would  be  the  admiration  of 
the  world.  As  it  is,  purchasing  power  can  only  be  obtained  through 
the  command  of  money  or  its  representatives.  As  long  as  this  money 
consists  only  of  a  scarce  commodity,  in  itself  absolutely  inadequate  to 
perform  the  service  expected  of  it,  the  break  between  productive 
power  and  purchasing  power  can  not  be  filled  up. 

Jonathan  Duncan  recognized  the  real  nature  of  such  a  crisis.  "We 
have  shown  that  in  the  natural  state  of  things  production  can  never 
exceed  consumption,  and  that  what  is  called  overtrading  in  goods 
really  means  the  underproduction  of  money.  It  means  that  more 
commodities  are  brought  to  market  than  can  be  distributed,  not  be- 
cause people  do  not  want  them,  but  because  the  instrument  of  distri- 
bution is  incommensurate.  If  the  Avharves  of  a  maritime  port  were 
chocked  up  with  goods  which  another  country  desired  to  possess,  as, 
for  instance,  corn  at  New  York  needed  in  England,  but  that  there 
were  insufficiency  of  ships  to  freight  the  corn  to  London  or  Liver- 
pool, it  would  be  very  illogical  to  say  that  the  Americans  had  over- 
traded in  the  production  of  corn ;  the  case  would  be  one  of  underpro- 
duction of  vessels,  manifesting  the  absence  of  the  instrument  of 
distribution. 

A  railway  station  further  illustrates  the  argument.  If  there  were 
more  passengers  than  the  train  could  carry,  the  directors,  looking 
to  their  own  interest,  would  not  insist  that  the  passengers  were  ex- 
cessive, and  complain  of  overtraveling,  but  decide  that  the  means  of 
conveyance  were  inadequate,  and  at  once  increase  the  number  of  cars 
and  locomotives.  The  question,  then,  amounts  to  this :  Would  there 
he  any  glut  of  produce  if  money  were  permitted  to  increase  as  fast  as 
produce  increased  ?  But  we  may  certainly  answer  this  question  in  the 
negative,  and  the  answer  subverts  the  whole  of  Mr.  Lloyd's  theory. 
AVhence  arise  the  convulsion,  pressure,  and  stagnation  which  Mr. 
Lloyd  pronounces  inevitable,  and  as  certain  to  recur  periodically  in 
established  cycles  ?  Surely  not  from  the  reluctance  of  hungry  people 
to  consume  food,  or  from  the  refusal  of  people  in  rags  to  wear  warm 
and  decent  clothing;  yet  we  are  told  all  the  evil  proceeds  from  the 
fact  of  those  very  people  having  been  too  industrious;  they  have 
overtraded,  they  have  created  too  much,  and  the  penalty  is  famine 
and  nakedness.  Under  this  theory,  the  conditions  of  the  productive 
classes  is  truly  pitiable;  if  idle,  they  are  treated  as  rogues  and  vaga- 
bonds ;  if  industrious,  they  are  deprived  of  bread. 

We  speak  of  overproduction  of  clothing  in  a  world  in  which  mil- 
lions have  not  half  as  much  clothing  as  they  need. 

"  Too  many  shirts  ?  Well,  that  is  a  novelty  in  this  intemperate 
earth,  with  nine  hundred  millions  of  bare  backs,"  says  Carlyle. 

This  panic  has  given  the  financial  rigors  to  all  the  bankers;  they 
realize  that  with  only  $2,870,368,696  in  the  currency  system  of  this 
country  and  only  $1,679,853,760  in  actual  circulation' they  had  to 
take  care  of  over  $13,099,635,348  owed  to  their  depositors  and  at  the 
same  time  provide  the  money  necessary  to  carry  on  $25,000,000,000 
worth  of  internal  commerce.  It  is  safe  to  say  that  if  the  country  had 
not  been  in  a  prosperous  condition,  and  the  American  people"  in  a 
pleasant  frame  of  mind,  half  the  banking  institutions  in  the  country 
would  have  been  closed  or  in  bankruptcy  caused  by  an  angry  and  out- 
raged people  demanding  their  money. 


68  CURRENCY  LEGISLATION. 

Let  this  occur  again  under  different  conditions  and  a  general  panic 
seize  the  people;  it  will  spread  like  wildfire  through  those  having  on 
deposit  $13,099,635,348  in  the  banking  and  saving  corporations  of 
the  country,  and  if  one-fifth  of  them  get  their  money  it  will  exhaust 
every  dollar  in  the  whole  currencj-  system  of  the  United  States,  or 
one-lwelfth  will  take  every  dollar  in  actual  circulation. 

After  the  lesson  of  this  panic,  which  caused  an  expose  of  the  utter 
inadequacy  of  money  to  meet  demands,  it  will  not  be  wise  for  the 
representatives  of  the  people  to  deal  longer  with  makeshifts  while 
such  serious  conditions  confront  the  people  at  large. 

As  we  are  living  under  a  written  constitution,  and  the  will  of  the 
people  is  the  supreme  law  of  the  land,  in  contradistinction  to  all  other 
forms  of  government,  it  is  useless  to  copy  or  imitate  banking  or  cur- 
rency systems  of  any  other  country.  If  it  were  not  out  of  place  it 
could  be  shown  that  the  money  lenders  and  banking  systems  of  the 
old  world  have  caused  more  poverty  and  prolonged  suffering  among 
the  people  than  war.  I  have  visited  these  countries  in  recent  years 
and  studied  their  conditions  from  a  financial  and  economic  stand- 
point, and  will  say  we  want  none  of  their  banking  systems  imported 
into  this  countr3^  Their  money  systems  mean  the  increasing  domina- 
tion of  capital  over  labor,  and  the  enhancement  of  the  value  of  money. 

The  great  oversight  made  by  the  bankers  of  this  country  is  the 
tremendous  advantages  the  United  States  has  over  the  rest  of  the 
world  in  its  resources  and  productive  capacity.  In  cultivating  a 
foreign  market  for  the  sale  of  stocks  and  bonds  they  have  lost  sight  of 
the  fact  that  if  we  had  an  adequate  amount  of  money  in  our  currency 
system,  the  handling  of  same  by  them  in  developing  the  tremendous 
resources  of  this  country  would  make  legitimate  banking  more  profit- 
able than  ever  before,  and  create  among  the  people  a  better  market 
for  bonds  and  stocks  than  can  be  found  abroad,  and  the  interest  on 
these  American  securities  would  be  kept  at  home  and  deposited  in 
American  banking  associations. 

The  American  Constitution  is  the  nearest  realization  in  the  con- 
crete of  the  principles  of  eternal  justice  ever  applied  to  human  gov- 
ernment, and  this  money  question  should  be  made  to  square  with  the 
Constitution  in  the  interest  of  the  American  people.  Banking  asso- 
/"iations  and  money  lenders  should  be  a  secondary  consideration. 
From  the  days  of  Aristotle  to  the  present  hour  all  intelligent  thinkers 
on  the  subject  know  that  money  is  a  creation  of  law.  The  vital  ques- 
tion now  is  one  of  more  money  to  keep  pace  with  the  immense  growth 
and  development  of  the  country.  Therefore  it  is  useless  to  try  to 
settle  this  question  by  discussing  it  from  the  premises  of  banks  and 
pi-omises  to  pay  issued  by  and  controlled  by  banking  associations. 

I>aiiks  are  organized  by  individuals  to  handle  and  loan  the  money 
of  de|)ositors.  not  to  create  money;  this  is  an  act  of  sovereignty,  a 
fund  ion  of  government. 

With  this  fundamental  principle  of  our  form  of  government  recog- 
nized, as  it  must  be,  a  sufficient  amount  of  full  legal-tender  dollars,  the 
best  money  in  the  world,  can  be  supplied  with  mathematical  precision 
to  our  monetary  system.  At  a  great  expense  our  Government  has 
eslablisherl  the  Census  Bureau,  Department  of  Commerce,  and  Labor, 
liiireau  of  Corj)oiations,  Interstate  Commerce  Commission,  etc.  These 
rlnpartments,  m  connection  with  the  Secretary  of  the  United  States 


CURRENCY   LEGISLATION.  69 

Treasury,  Comptroller  of  the  Currency,  and  Director  of  the  Mint,  can 
supply  all  necessary  data  upon  Avhich  sufficient  addition  of  money  can 
be  supplied  and  regulated  on  a  percentage  basis  by  the  Congress  of 
the  United  States,  according  to  the  increase  of  wealth,  business,  and 
population.  Thus  the  most  perfect  monetary  system  could  be  estab- 
lished ever  known  to  the  human  family,  as  it  would  be  in  the  interest 
of  the  whole  people,  and  at  the  same  time  a  fair  standard  of  value 
between  buyer  and  seller,  and  preserve  the  equity  of  time  contracts 
between  debtor  and  creditor. 

Mr.  Chairman,  before  closing  my  argument  in  regard  to  the  ques- 
tions asked  at  a  previous  hearing  as  to  the  redemption  of  the  full 
legal-tender  American  dollar,  a  simple  illustration  may  best  explain 
it.  A  has  a  hundred-dollar  legal-tender  note.  B  has  a  horse,  which 
A  values  at  $100,  and  he  closes  the  purchase ;  the  horse  redeems  the 
$100  note  so  far  as  A  is  concerned.  B  then  desires  to  pay  a  debt  of 
$100,  and  the  hundred-dollar  note  is  then  redeemed  by  the  debt  so  far 
as  B  is  concerned,  and  the  process  goes  on  ad  infinitum,  these  legal- 
tender  dollars  being  a  universal  order  for  all  things  on  sale,  all  serv- 
ices for  hire,  and  the  ultimate  of  payment  for  all  debts. 

Answering  the  chairman's  question  as  to  prices  in  Canada  being 
the  same  as  in  the  United  States,  am  constrained  to  say  he  has  been 
misinformed.  I'he  general  level  of  prices  in  Canada  is  fully  20  per 
cent  lower  than  in  the  United  States. 

To  my  mind  it  is  a  self-evident  proposition  that  the  purchasing 
power  of  a  dollar  or  money  unit  is  not  any  so-called  intrinsic  value 
in  the  dollar,  but  the  competition  of  all  men  to  get  dollars,  and  if  the 
number  of  dollars  do  not  keep  pace  with  the  growing  demands  for 
dollars,  their  value  w^ill  increase  and  greater  sacrifices  will  have  to 
be  made  by  the  people  to  get  dollars,  demand  operating  against 
supply. 

To  deny  the  quantitative  principle  in  money  is  simply  questioning 
the  law  of  supply  and  demand,  which  is  as  universal  as  the  law  of 
gravitation. 

Since  the  panic  of  October,  1907,  there  had  been  forced  into  the 
currency  sj'stem  a  temporary  increase  of  money,  viz.  the  coinage  of 
$10,364,720  of  gold  in  October,  $33,840,060  in  November,  and  $12,- 
929,085  in  December,  1907.  And  in  addition  to  this  an  increase  of 
bank  circulation  -on  Panama  bonds  issued  and  Government  certifi- 
cates of  indebtedness. 

The  people  must  not  be  misled  by  statements  putting  the  per 
capita  of  money  at  $35  as  of  this  date,  as  it  is  only  temporary  and  an 
unfair  way  of  putting  it.  To  make  this  plain  I  refer  again  to  the 
Report  of  the  Comptroller  of  the  Currency  for  1907,  page  48 : 

Of  the  total  stock  of  money  in  the  country  11  per  cent  is  held  in  the  Treasury 
as  assets,  35.51  per  cent  is  in  reporting  banks,  and  53.49  per  cent  elsewhere,  the 
per  cai)ita  not  in  the  Treasury  or  banks  in  1907  being  $19.36,  or  $1.03  less  than 
in  1906. 

Owing  to  the  scarcity  of  money,  $112,535,852  in  gold  was  imported 
into  this  countrv,  yet  only  $57,133,865  has  been  coined  into  money  up 
to  December  1,  1907. 

This  would  make  the  coinage  account  stand  as  follows  (letter  re- 
ceived by  me  from  Director  of  Mint  January  3,  1908)  :  Coinage  exe- 
cuted at  the  mint  during  the  calendar  year  1907.  $131,907,490. 
Deduct  amount  of  this  coined  up  to  the  ending  of  the  fiscal  year, 


70  CUBRENCY   LEGISLATION". 

July.  1907,  of  $79,622,337.50.  We  put  to  the  credit  of  the  next  fiscal 
year,  1908,  $52,285,152.50. 

Ahhough  the  Secretary  of  the  Treasury  and  the  Comptroller  of 
the  Currency  both  admit  there  was  no  lack  of  warning  indications 
of  financial  troubles  and  possible  business  disaster  for  the  last  year 
or  two,  and  these  conditions  must  have  been  well  known  among  the 
financiers  of  the  large  banks  in  New  York,  with  whom  these  officials 
of  the  Treasury  were  in  close  business  relations,  it  is  therefore  passing 
strange  that  nothing  was  done  by  them  to  protect  the  people  against 
such  a  crisis  and  the  loss  of  untold  millions. 

It  is  a  question  of  more  money. 

The  Comptroller  of  the  Currency  admits  it  on  pages  66,  67,  and  68 : 

For  at  least  ten  or  twelve  years  there  has  been  an  era  of  advancing  prices 
and  great  industrial,  commercial,  and  speculative  activity  in  all  the  countries  of 
the  world.  Credits  have  increased  and  multiplied  until  the  limit  has  been 
reached  in  the  amount  of  reserve  money  on  which  they  must  be  based. 

*  *  *  *  .  *  !)l  1^ 

The  difficulty  in  selling  bonds  has  become  so  great  that  for  several  years 
many  of  the  railways  have  had  to  raise  money  for  their  necessary  expendi- 
tures and  improvements  with  so-called  short-time  notes,  instead  of  regular 
bond  issues,  the  rates  of  interest  on  such  issues  rising  higher  and  higher  and 
each  issue  being  harder  to  place.  Merchants  and  manufactui'ers  of  the  highest 
standing  and  credit  have  found  it  more  and  more  dilflcult  to  secure  or  renew 
loans  and  the  rates  have  risen  steadily  for  months  past. 

On  October  26  the  New  York  clearing-house  banks  decided  to  issue  clearing- 
house certificates  for  use  in  the  payment  of  balances,  and  to  limit,  if  not  sus- 
pend, the  shipment  of  curi-ency  to  out-of-town  banks.  In  this  the  New  York 
banks  were  followed  by  those  of  the  other  central  reserve  and  most  of  the 
reserve  cities.  The  result  was  to  at  once  precipitate  a  most  serious  bank  crisis 
and  a  famine  of  curi-ency  for  pay  rolls  and  other  necessary  cash  transactions. 
All  domestic  exchanges  were  at  once  thrown  into  disorder  and  the  means  of 
remittance  and  collection  were  almost  entirely  suspended.  Money  has  been 
withdrawn  and  hoarded  by  individuals,  corporations,  and  even  more,  perhaps, 
by  the  banks  themselves,  all  of  whom  at  once  drew  and  held  all  the  money  of 
any  kind  they  could  obtain,  often  really  in  larger  sums  than  needed. 

Factories  have  suspended,  workmen  have  been  thrown  out  of  employment, 
orders  ha^•e  been  canceled,  the  moving  of  crops  has  been  greatly  retarded  and 
interfered  with,  and  exports  have  fallen  off  at  a  time  of  the  year  when  they 
should  be  at  their  highest.  Another  result  has  been  a  reduction  of  the  volume 
of  the  foreign  credits  available  .iust  at  the  time  they  are  more  needed  to  offset 
the  large  imports  of  gold  which  have  been  made. 

******* 

The  conditions  which  led  to  the  panic  of  October  and  November,  11)07,  were 
not  due  to  the  failure  of  a  few  individual  banks.  They  were  not  due  to  the 
lack  of  confidence  of  the  people  in  the  banks,  but  more  to  a  lack  of  confidence 
of  the  banks  in  fiiemselves  and  their  reserves.  Banks  have  been  fearful  that 
the  reserve  system  would  break  down,  and  in  consequence  it  has  broken  down, 
and  the  reserve  de])osits  have  been  only  partially  available.  They  were  also 
fearful  that  not  sulliclent  money  could  be  supplied  to  meet  the  demand,  and  as 
they  all  made  tlie  demand  at  once  there  Ims  not  l»cen  snilicient  money.  The 
result  has  been  a  money  famine. 

The  noniia]  (i'cihI  of  gold  is  shown  by  the  following  coinage  of  the 
mints  of  the  United  States  and  the  world  (p.  15.  Director  of  Mint, 
1907)  for  the  fiscal  year.s — 

lOfK) iflOT.  a",7,  no.  00  l  in04 $20S,  bis,  642.  oo 

1001 !•!),  Od.'-.,  7M.  00      1005 79,083,692.00 

1902 01,080,572.00      1906 53.002,097.50 

3903 45,721,773.00  11907 79,622,337.50 


CURRENCY  LEGISLATION.  71 

By  reference  to  Statistical  Record  of  the  Progress  of  the  United 
States,  Department  of  Commerce  and  Labor,  page  3.  it  will  be  seen 
there,  under  head  of  "  Money  in  circulation."'  there  was  no  increase 
in  circulation  of  gold  from  1900  to  1907. 

By  reference  to  page  81,  1906,  Report  of  the  Director  of  the  Mint, 
we  find  the  "  Estimated  stock  of  gold  in  the  United  States"  for  the 
fiscal  years — 

3900 $1,034,439,264  I  3903 $1,249,552,756 

1901 1,124,  652.  81S  M904 1,327,672,672 

]902 1,192,395,607  11905 1,357,881,186 

Director  of  Mint  Report  for  1907,  page  93 : 

1906   $1,368,612,051   |   1907 $1,328,768,271 

A  net  decrease  in  last  fiscal  year  of  $39,843,780. 
Report  Director  of  Mint  1907,  page  102 : 

1873  coinage  of  gold  in  tlie  mints  of  tlio  world "  $257,630,802 

1905  coinage  of  gold  in  the  mints  of  the  world 245.954,257 

After  a  lapse  of  thirty-two  years  a  falling  off  of  $11,676,545  in 
the  coinage  of  gold  in  the  world. 

Report  Director  of  Mint  1907,  page  2 : 

1897  coinage  of  gold  in  the  mints  of  the  world $437,722,992 

1906  coinage  of  gold  in  the  mints  of  the  world 366,326,  788 

After  a  lapse  of  nine  years  a  falling  off  of  $71,396,204  in  the  coin- 
age of  gold  in  the  world. 

Report  Director  of  the  Mint  1906.  Stock  of  money  in  European 
banks,  notes  in  circulation,  December  31.  1905 — England.  France, 
Germany,  Scotland,  Ireland,  Austria-Hungary,  Belgium,  Bulgaria, 
Denmark,  Spain,  Greece.  Netherlands.  Italy,  Sicily.  Norway,  Portu- 
gal, Roumania,  Russia,  Finland.  Servia,  Sweden.  S^vitzerland — all 
now  designated  as  gold-standard  countries.  Total  of  gold,  $1,867,- 
661,000  (decrease  from  1904  of  $12,352,000)  ;  total  of  silver,  $525,- 
153,000  (net  decrease  from  1904  of  $17,370,000).  Notes  in  money 
systems  December  31,  1905,  $3,660,245,000  (net  increase  over  1904, 
$321,152,000).  Now,  being  so-called  gold-standard  countries,  we  must 
add  the  silver  to  the  notes,  and  the  total  Avill  be  $4,185,398,000  of 
notes  to  $1,867,661,000  gold.  Percentage  of  gold  to  other  kinds  of 
money  in  European  countries,  44  per  cent. 

Gold  in  the  United  States  money  system  as  per  last  revised  report 
of  the  Director  of  the  ]\Iint,  United  States,  page  93,  for  June  30,  1907, 
$1,328,768.271 ;  other  kinds  of  money,  $1,679,473,312.  Percentage  of 
gold  to  other  kinds  of  money  in  United  States.  79  per  cent. 

Upon  the  basis  of  European  countries.  44  per  cent,  the  United 
States  based  upon  the  gold  in  its  money  system,  $1,328,768,271,  would 
be  entitled  to  an  increased  issue  of  notes  of  $1,296,967,615,  or  a  total 
stock  of  money  in  the  United  States  of  $4,305,209,198. 

Percentage  of  gold  to  other  kinds  of  monev  in  France.  51  per  cent : 
Gold,  $555,454.000 ;  other  kinds  of  money,  $1,088,713,000. 

Upon  the  basis  of  France  the  United  States  would  be  entitled  to 
an  increase  issue  of  notes,  based  upon  its  gold  money,  of  $1,164,090.- 
787;  or  a  total  stock  of  money  in  the  United  States  of  $4,172,332,370. 

Based  upon  the  banking  principle  of  25  per  cent  of  cash  to  credit 
the  amount  due  depositors  in  banks,  trust  companies,  savings  banks, 


72  CURRENCY   LEGISLATION". 

and  building  and  loan  associations,  United  States,  a  total  of  over 
$15,000,000,000.  Twentv-five  per  cent  of  this  amount  would  be 
$3,750,000,000. 

COMPARISON. 

After  eight  hundred  years  we  have  the  following  condition  in  the 
United  Kingdom,  1904^5:  Area,  United  Kingdom,  121,371  square 
miles:  population,  43,217,687.  England's  national  debt,  $6,196.- 
038,685.  Gold  in  banks,  public  treasuries,  $196,400,000 :  in  circulation, 
$290,300,000:  total,  S486.700,000.  or  7  cents  on  the  dollar  of  national 
debt. 

France,  after  eleven  hundred  years:  Area,  207,054  square  miles; 
national  debt.  $6,963,953,193.  Population,  39,300,000.  Gold,  $555,- 
450,000,  or  8  cents  on  the  dollar  of  national  debt. 

Xow  hear  the  case  of  the  United  States  of  America.  Area, 
3,624,122  square  miles;  population,  86,666,000.  After  one  hundred 
and  thirtj^-one  years:  National  wealth,  $117,304,211,917;  annual  in- 
crease, $3,400,000,000.  Internal  commerce,  $25,000,000,000.  Foreign 
exports,  $1,853,000,000,  and  enough  gold  in  the  money  system  to  pay 
off  her  national  debt  and  ha ^e  more  left  over  than  any  other  country 
has  in  its  monetary  system. 

Upon  this  showing  the  American  people  have  the  right  to  demand 
an  immediate  increase  of  money.  For  thirty-five  years  they  have 
patiently  waited  for  the  Congress  to  settle  this  mone}^  question  upon 
a  logical  and  sensible  basis.  They  have  suffered  the  results  of  make- 
shift legislation  resulting  in  panic  after  panic.  And  now  they  find 
the  magnificent  prosperity  of  this  country  has  been  legislated  into  a 
financial  blind  alley,  and  more  makeshift  legislation  is  suggested. 

As  a  practical  man  familiar  with  the  causes  and  temporary  cures 
effected  by  the  issue  of  credit  currency,  I  do  not  hesitate  to  say  that 
if  the  Congress  of  the  United  States  would  authorize  the  issue  of 
five  hundred  millions  full  legal  tender  American  dollars  to  the  mon- 
etary system  and  to  be  gradually  placed  in  circulation  through  the 
appropriation  committees  of  Congress  in  the  same  way  that  the 
money  received  from  the  taxes  of  the  people  is  again  j^ut  into  circu- 
lation, the  passage  of  such  a  bill  would  act  like  magic  upon  the  whole 
business  conditions  of  the  country,  and  prosperity  would  be  upon  us 
again. 

Congress  can  then  take  up  the  question  as  to  the  proper  amount 
of  money  the  monetary  system  of  the  United  States  should  have  to 
meet  its  marvelous  development. 

The  CiiAiKMAN.  Is  there  any  other  gentleman  to  be  heard  now? 

Mr.  II.AYKS.  I  see  that  we  have  Mr.  (Jompers  with  us  this  morn- 
ing, and  1  shoiiM  like  to  henr  from  him  if  he  has  anything  to  say 
on  the  subject. 

STATEMENT    OF   SAMUEL   GOMPERS.    ESQ..    PRESIDENT    OF   THE 
AMERICAN  FEDERATION  OF  LABOR. 

Mr.  Go.MPKHS.  Mr.  (Jliairman  and  genlleinen  of  the  committee,  I 
came  here  for  the  purpose  of  meeting  a  member  of  the  committee, 
and  I  have  not  come  |)rei)ared  to  discuss  any  featui-e  of  the  financial 
I»robl('m.  or  to  -submit  anv  solution.     I  ;i in  free  to  admit  that  after 


CURRENCY  LEGISLATION.  73 

very  many  years  of  o-ivino^  the  subject  of  money  and  its  issuance  the 
best  thought  and  consideration  I  could,  T  have  not  yet  solved  the 
problem,  even  to  my  own  satisfaction.  I  believe  that  we  must  meet 
the  new  conditions  which  confront  us  as  a  people  and  as  a  nation, 
and  that  many  old  conceptions  must  give  way  to  new  conditions. 
Yet  I  can  not  escape  the  thought  that  the  provision  of  the  Constitu- 
tion ought  to  have  a  little  more  weight  than  has  been  given  it  in  re- 
cent years — that  is,  as  to  the  power  of  the  issuance  of  money.  The 
delegation  of  that  power  to  private  interests  is  something  that,  in 
my  judgment,  is  not  sustainable  by  the  proper  interpretation  or  con- 
struction of  the  constitutional  provision  that  the  Government  of  the 
United  States  is  the  duly  constituted  authority  for  the  issuance  of 
money.  I  am  not  given  to  haphazard  criticism,  but  this  thought  that 
I  shall  submit  in  a  moment  has  been  with  me  for  many  years;  and 
inasmuch  as  you  have  asked  me  whether  I  have  anything  to  say,  and 
as  I  am  now  on  my  feet,  I  think  I  ought  to  say  it.  It  never  struck 
me  as  quite  the  fair  thing  for  the  Government  to  issue  interest- 
bearing  bonds,  and  to  permit  certain  persons  organized  into  an  asso- 
ciation called  a  banking  institution  to  buy  these  bonds  from  the  Gov- 
ernment, to  receive  interest  thereon,  and  then  by  depositing  these 
bonds  with  the  Government  to  issue  for  many  years  90  per  cent 
of  bills 

Mr.  James.  One  hundred  per  cent  ? 

Mr.  GoMPERS.  Yes;  100  per  cent.  I  said  for  many  years  90  per 
cent,  and  recently  by,  I  think,  the  act  of  the  Fifty-ninth  Congress 

Mr.  Gillespie.  The  act  of  1900? 

Mr.  GoMPERS.  Yes ;  by  the  act  of  the  Fifty-seventh  Congress  it  was 
increased,  so  that  to  the  full  face  value  of  those  bonds — that  is.  100 
per  cent — by  authority  of  the  Government  the  power  is  given  to  these 
associations  and  banks  to  issue  bills  and  to  secure  upon  these  bills 
all  the  interest  and  return  that  can  come  from  them.  It  has  the 
people,  coming  and  going,  paying  interest  upon  these  bonds  lodged 
with  the  Government,  and  the  bank  (as  if  there  had  been  no  money 
transaction  at  all.  and  as  if  it  had  kept  its,  say,  $1,000,000)  receiving 
the  interest  and  then  issuing  its  original  money,  or  what  is  equivalent 
to  it,  and  receiving  all  the  advantages  that  come  from  the  use  of  this 
million  dollars. 

Mr.  Powers.  Might  I  ask  you  a  question  right  there? 

Mr.  GoMPERS.  Yes.  I  will  not  promise  that  I  shall  be  able  to 
answer  you.  however. 

Mr.  Powers.  Do  you  object  to  this  on  the  ground  that  it  affords 
the  bank  an  unwarranted  privilege  of  making  money? 

Mr.  GoMPERS.  Yes,  sir.  I  believe  that  the  bank  is  entitled  to  the 
same  interest  upon  the  bond  that  every  other  citizen  is  entitled  to 
receive,  but  it  ought  not.  in  my  judgment,  as  a  matter  of  justice  and 
equity  between  man  and  man,  as  between  the  citizen  and  the  nation, 
to  have  the  privilege  of  using  that  same  money  or  its  equivalent  for 
the  purpose  of  a  double  profit,  that  profit  being  entirely  out  of  pro- 
portion to  the  interest,  perhaps,  which  it  receives  from  the  Gov- 
ernment. 

Mr.  Powers.  Have  you  ever  taken  pains  to  compute  how  much, 
in  ordinary  times,  a  bank  can  make  by  issuing  its  money  in  that  way  ? 

Mr.  GoMPERS;  No,  sir;  I  have  not.  Sometimes  you  people  talk 
about  millions  and  billions,  and  you  make  me  dizzy. 


74  CURRENCY   LEGISLATION. 

Mr.  PowEES.  Is  it  or  is  it  not  a  fact  that  the  majority  of  the  banks 
in  this  coiintry^ — I  use  the  term  advisedly — declined,  many  of  them, 
to  buy  bonds  and  take  out  any  more  of  that  currency  than  they  are 
absolutely  compelled  to,  because  they  can  not  make  a  fair  profit  on  it? 

Mr.  GoMPERS.  A  fair  profit  on  what? 

Mr.  Powers.  On  the  transaction  of  buying  bonds  and  taking  out 
currency? 

Mr.  Weeks.  You  mean  on  taking  out  circulation  ? 

Mr.  Powers.  Yes;  taking  out  circulation  from  the  bonds.  Do  not 
a  great  number  of  the  banks  absolutely  refuse  to  avail  themselves  of 
the  privilege  of  taking  out  any  more  than  the  Government  compels 
them  to  take  out.  because  there  is  nothing  to  be  made  out  of  it  ? 

!Mr.  GoMPERS.  Maj'be  that  is  true,  but  it  does  seem,  upon  the  sur- 
face, to  be  an  unfair  transaction.    Now,  let  me  put  it  in  this  way 

Mr.  Powers.  Yes. 

!Mr.  GoMPERS.  You  issue  a  bond. 

Mr.  Powers.  Yes. 

Mr.  GoMPERS.  And  I  buy  it. 

]Mr.  Powers.  Yes. 

]Mr.  GoMPERS.  You  pay  me,  saj^,  3  per  cent. 

^Ir.  Po AVERS.  Three  per  cent  ? 

Mr.  Go:mpers.  Well,  say  two  and  something 

Mr.  Powers.  But  the  interest  that  you  get  after  paying  the 
premium  on  the  bond  is  one  and  something. 

Mr.  Gompers.  You  pay  me  interest  upon  that  bond,  and  then  I 
deposit  with  you. 

Sir.  Powers.  I  understand. 

Mr.  Gompers.  And  then  upon  the  money  with  which  I  buy  that 
bond  you  give  me  authority  to  use  an  equal  amount  for  the  purpose 
of  business  transactions. 

Mr.  Powers.  Now,  I  want  to  ask  this.  The  2-per-cent  bond  which 
is  principally  used  for  banking  now  sells  for  104^,  so  that  the  inter- 
est the  Government  pays  to  the  man  is  something  less  than  2  per  cent. 
Now,  if  I  take  out  circulation  on  $100,000  of  bonds  I  get  $100,000  of 
circulation.  If  I  am  in  a  reserve  city  I  can  loan  $75,000  on  account 
of  taking  out  that  circulation.  The  law  compels  us  to  keep  a  reserve 
of  15  per  cent  of  the  money  in  a  reserve  city,  and  25  and  20  per  cent  in 
other  cities,  behind  the  circulation  that  we  can  not  loan.  The  banks 
are  compelled  to  pay  for  the  dies  and  for  the  printing  of  the  bills 
and  reissuing  the  circulation,  and  the  interest  on  the  bonds  is  so  small 
that  when  you  figure  it  up,  in  my  judgment,  there  is  no  money  in  it. 
Every  bank  that  I  am  connected  with  but  one 

Mr.  Gillespie.  There  is  no  reserve  required  against  the  notes.  It 
is  a  5-per-cent  redemption  fund. 

Mr.  Powers.  Yes:  and  every  bank  that  I  am  connected  with  but 
one  utterly  declines  to  take  one  particle  more  than  they  are  compelled 
to.  The  law  compels  us  to  take  out  a  certain  amount,  and  that  we 
take.    There  is  no  monev  in  it. 

Mr.  Ja.mks.  I  would  like  to  suggest  to  Governor  Powers  and  to  Mr. 
Crompers  that  these  bonds  that  they  purchase  from  the  Government 
are  exempt  from  taxes — State,  county,  and  municipal. 

Mr.  Powers.  If  they  were  taxed  the  tax  would  be  more  than  all  the 
interest,  I  believe.  T  think.  Mr.  Gompers.  you  will  find  if  you  investi- 
gate that  there  is  no  bonanza  of  wealth  for  the  banks:  that  the  fact 


CURRENCY   LEGISLATION.  75 

that  they  are  compelled  to  buy  a  certain  class  of  bonds  and  to  pay  so 
high  a  premium  to  get  them,  that  they  get  so  little  interest,  and  then 
have  to  keep  a  5  per  cent  reserve  against  them,  and  pay  all  the  other 
incidental  expenses,  leaves  no  great  bonanza  for  the  banks. 

Mr.  GoMPERS.  But  the  opportunity  of  turning  the  money  over  and 
over  again 

Mr.  Powers.  The  banking  act  compels  us  to  purchase  these  bonds 
and  to  take  out  circulation,  and  the  object  of  that,  when  that  banking 
act  was  passed  many  years  ago,  was  to  furnish  a  means  Avhereby  the 
Government  could  fund  its  debt,  and  could  take  care  of  its  debt;  and 
hence  this  national-banking  system  that  we  now  have  was  created  for 
a  twofold  purpose.  One  object  was  to  give  currency  that  would  be 
sound,  and  the  other  was  to  enable  the  Government  of  the  United 
States  to  care  for  the  debt;  and  hence  all  banks  organized  under  it 
were  compelled  to  buy  bonds  and  take  out  a  certain  amount  of  circu- 
lation. They  are  compelled  to  do  it,  and  I  apprehend  that  many 
banks  to-day  would  not  take  out  a  dollar  if  they  Avere  not  compelled 
to. 

Mr.  GoMPERS.  In  other  words,  there  is  much  less  advantage  than  is 
popularl}'^  supposed  ? 

Mr.  Powers.  Very  much  less. 

Mr.  GoMPERS.  But  there  is  no  question  of  its  absolute  unfairness, 
and  I  think  it  is  an  improper  course. 

Mr.  Powers.  I  think  there  is  a  question  about  that. 

Mr.  Gompers.  I  would  like  to  take  the  position  of  the  Yankee,  who, 
when  asked  a  question,  turns  questioner. 

IVIr.  Powers.  Certainly. 

Mr.  Gompers.  A  few  weeks  ago  I  took  occasion  at  a  public  gather- 
ing to  say  that  whoever  might  be  charged  with  the  responsibility  for 
our  money  panic,  I  thought  I  was  right  in  claiming  that  no  blame  of 
that  character  could  be  laid  at  the  door  of  the  working  people  of  the 
country ;  and  I  would  like  to  know 

Mr.  Powers.  I  think  it  was  a  rich  man's  panic,  myself. 

Mr.  Gompers.  I  would  like  to  know  whether  in  the  judgment  of  the 
gentleman  I  w^as  right? 

Mr.  PoAVERS.  I  think  it  was  a  bankers'  panic. 

Mr.  Gillespie.  Did  you  not  advise  the  laboring  people  not  to  with- 
draw their  deposits? 

Mr.  Gompers.  Yes,  sir.  I  not  only  advised  them  not  to  withdraw 
their  deposits  from  the  institutions  in  which  they  had  any  savings, 
but  I  advised  them  if  they  had  any  hoarded  at  all  to  deposit  it.  I  felt 
it  was  safer  in  the  financial  institutions  of  the  country  than  in  the 
home,  or  in  the  safe-deposit  companies.  An  officer  of  one  of  our 
great  trade  unions.  Mr.  Perkins,  the  president  of  the  Cigar  Makers' 
International  Union,  perhaps  one  of  the  richest  organizations  of  labor 
in  America,  was  asked  what  the  local  officers  of  the  unions  should 
do  in  regard  to  the  present  financial  situation.  I  ought  to  say  that 
through  a  magnificently  devised  system  of  finance  in  that  organiza- 
tion the  funds  are  held  under  a  dual  condition  or  system. 

The  entire  fund  of  the  organizations  throughout  the  continent  of 
America  is  the  joint  property  of  every  member  of  the  organization 
on  the  continent ;  that  is,  it  is  one  fund,  and  yet  it  is  held  in  the  local 
treasuries  subject  to  the  direction  of  the  duly  constituted  officers  of 
the  organization,  based  upon  a  system  of  safeguards  that  have  been 


76  CURRENCY   LEGISLATION. 

proven  to  work  out  excellently.  Many  of  the  secretaries  wrote  in  to 
the  office  of  the  president  of  that  organization  asking  what  should  be 
done  and  whether  the  various  local  unions,  throughout  the  country, 
ought  to  withdraw  their  funds.  His  answer  was  "  let  the  money  be 
where  it  was  before  this  panic  came  upon  us." 

That  is  not  the  mere  passing  statement  of  a  man  without  responsi- 
bility. Here  was  an  executive  officer  of  an  organization  with  over 
four  hundred  branches  throughout  the  United  States  and  Canada 
and  Cuba  and  Porto  Eico,  telling  the  men  intrusted  with  the  financial 
affairs  of  the  organization  to  keep  the  money  where  it  was  and  not 
to  withdraw  it ;  that  it  was  better  to  take  the  chance,  and  that  it  would 
be  helpful  in  tiding  over  the  awful  stringency,  while  on  the  other 
hand  the  withdrawal  of  it  would  simply  accentuate  it.  So  that  has 
been  the  policy  all  the  way  through.  I  do  not  know  of  any  union 
workmen,  as  individuals,  who,  if  they  had  a  dollar  deposited  any- 
where, withdrew  it.  As  a  matter  of  fact,  these  men  in  the  labor 
unions  discuss  finance  sometimes;  they  discuss  economics;  they  dis- 
cuss the  history  of  nations,  and  the  policies  of  parties.  They  do  not 
act  simply  upon  their  own  judgment,  each  one  for  himself,  but  the 
judgment  obtained  is  the  majority  opinion;  not  by  actual  vote,  but 
by  the  judgment  expressed.  A  man  who  has  an  opinion  brings  it  up 
before  a  local  organization  and  it  is  discussed  in  open  meetings,  per- 
haps public  meetings,  mass  meetings,  and  there  is  a  degree  of  inter- 
dependence, a  degree  of  higher  education  as  to  a  man's  duty  to  his 
fellows,  that  is  not  possessed  by  the  nonunion  man,  whom  I  have 
never  denounced,  but  whom  I  have  criticized  for  his  lack  of  judg- 
ment ;  who,  being  outside  the  pale  of  the  organization,  wants  to  reap 
all  the  benefits  that  organized  efforts  have  secured,  yet  does  not  want 
to  share  any  part  of  the  responsibility.  As  a  consequence  he  is  unin- 
formed, comparatively  speaking;  and  he  has  no  conception  of  his 
duty  to  his  fellow-man. 

I  find  that  I  am  really  talking  before  the  committee.  It  was  not 
my  intention  to  do  so. 

Mr.  "Weeks.  I  want  to  call  Mr.  Gompers's  attention  to  one  other 
matter  in  connection  with  the  issuing  of  circulation,  because  the  state- 
ment he  has  made  is  one  that  is  very  often  made,  and  one  which  I 
think  is  not  justified  by  the  facts.  That  is,  the  impression  prevails 
that  banks  make  a  large  profit  in  issuing  circulation,  (xovernor 
Powers's  statements  would  indicate  that  that  is  not  true;  but  there 
is  another  point  in  connection  with  that:  The  banks  hold  about  seven 
hundred  millions  of  2  per  cent  bonds.  If  those  bonds  were  selling 
upon  the  market,  if  the  banks  were  not  obliged  to  buy  them,  they 
would  sell  on  about  a  8  per  cent  basis — I  mean,  assuming  that  they 
bore  the  same  comparative  value  to  other  Government  securities. 
That  seven  hundred  millions  of  bonds  on  a  3  per  cent  basis  would  cost 
the  (lovernmeut  seven  millions  more  a  year  than  they  do  on  the  2  per 
cent  l)asis.  In  other  words,  the  fact  that  the  banks  aVe  obliged  to  buy 
those  bonds,  or  a  large  percentage  of  them,  under  the  law,  enables  the 
(iovernment  to  save  about  seven  millions  a  year,  which  is  saved  to  the 
people,  of  course.  That  is  something  that  is  not  generally  taken  into 
consideration  in  connection  with  this  question  of  the  banks  issuing 
circulation  and  making  money  out  of  it.  As  a  matter  of  fact,  they 
make  abont  one-half  of  1  per  cent — ^one-half  to  three-quarters  of  1  per 
cent — on  circulation  in  normal  times,  and  thev  tak(^  their  chances  on 


CURRENCY   LEGISLATION.  77 

losing  on  the  principal,  on  the  price  of  the  bond ;  for  they  buy  it  at 
105,  perhaps,  and  sell  at  102. 

Mr.  GoMPERS.  I  have  never  yet  inquired,  and  I  would  like  to  know, 
what  is  the  profit  either  to  the  Government  or  the  banks  by  reason  of 
the  loss  or  destruction  of  money  ? 

Mr.  Hayes.  The  Government  gains  the  full  benefit  of  it. 

Mr.  GoMPERS.  I  mean  when  bills  are  lost  ? 

Mr.  Hayes.  The  Government  gains  the  full  benefit  and  not  the 
banks. 

Mr.  McCreary.  The  Chemical  National  Bank  has  a  capital  now  of 
$3,000,000,  as  I  understand.  They  have  only  taken  out  $50,000,  the 
very  minimum  of  bond  circulation;  and  that  shows,  you  know,  that 
the  banks  themselves  do  not  figure  that  there  is  any  benefit  in  it  or 
any  profit. 

Mr.  Waldo.  They  never  issued  any  of  it  ? 

Mr.  McCreary.  They  never  issued  a  cent  of  it.  They  hold  $50,000 
of  Government  bonds,  so  as  to  conform  to  the  law.  They  come  under 
the  banking  act,  but  they  have  not  issued  any  circulation. 

Mr.  Powers.  Is  it  not  a  fact  that  very  many  banks  take  no  more 
than  they  absolutely  have  to? 

Mr.  McCreary.  That  is  one  trouble  with  the  issuance  now\ 

Mr.  Hayes.  Along  that  same  line  I  want  to  suggest,  Mr.  Gompers, 
that  it  seems  to  me  the  matter  is  fully  settled  by  this  consideration, 
which  I  guess  nobody  will  deny,  that  the  national  banks  of  the  United 
States  at  this  minute  could  take  out  something  like  $300,000,000  more 
circulation  than  they  have  just  by  presenting  the  bonds  and  request- 
ing it.  If  there  was  any  profit  in  it  for  them  do  you  not  think  they 
would  be  sharp  enough  after  it  to  do  that  thing? 

Mr.  Gompers.  Well,  they  have  the  reputation  of  being, 

Mr.  McCreary.  The  bonds  got  up  to  109,  and  107^  asked,  and  sold 
at  107,  and  they  are  down  now  to  about  104  and  104^.  So  that  is,  of 
course,  an  element  to  be  considered  in  bond  circulation. 

Mr.  Glass.  Mr.  Chairman,  if  we  are  here  to  devise  a  currency  sys- 
tem or  to  correct  the  deficiencies  of  the  present  currency  system, 
would  it  not  be  pertinent  to  inquire  if  the  facts  stated  by  Governor 
Powers  and  these  other  gentlemen  here  do  not  in  themselves  discredit 
the  present  currency  system  that  we  have  ? 

Mr.  Hayes.  I  think  they  do.    I  agree  with  you. 

Mr.  Glass.  Is  it  not  a  fact  that  the  Government  bonds,  by  reason 
of  this  miserable  system  we  have,  acquire  a  fictitious  value,  and  that 
for  that  reason  the  banks  do  not  take  out  circulation  enough  tb 
transact  the  business  of  the  country  ? 

Mr.  PoAVERS.  One  of  the  principal  objects,  in  my  judgment,  of  the 
banking  bill,  as  formulated  by  the  Secretary  of  the  Treasury,  was 
the  10  per  cent  tax  on  issuing  bank  bills  from  States.  The  object  of 
the  bill  was  to  afford  a  place  where  the  Government  could  fund  its 
debt,  and  could  get  rid  of  its  debt,  and  I  want  to  say  as  to  that  that  it 
has  worked,  and  they  have  builded  better  than  they  knew.  As  to 
that,  it  has  worked  admirably.  It  has  enabled  the  Government  to 
refund  its  debt  a  number  of  times,  upon  a  lower  rate  of  interest,  until, 
owing  to  the  fact  that  the  bonds  have  become  necessary  for  banking, 
our  Government  has  borrowed  and  is  borrowing  to-day  at  a  much 
lower  rate  than  any  government  in  the  world. 


78  CURRENCY   LEGISLATION. 

Mr.  Glass.  And  at  the  same  time  has  created  a  condition  of  pros- 
tration in  the  industries  of  the  country. 

Mr.  James.  One  advantage  which  the  national  banks  have,  which 
you  did  not  touch  upon,  Mr.  Gompers,  is  that  the  Secretary  of  the 
Treasury  has  been  depositing  many  millions  of  surplus  gathered 
from  the  people  by  taxation  in  the  various  national  banks,  and  no 
interest  charge  at  all  has  been  paid  for  the  use  of  the  money;  and 
that  is  an  advantage  of  no  mean  importance. 

Mr.  Powers.  I  want  to  say  right  here  that  I  hope  somebody  will 
bring  in  a  bill  charging  2  per  cent  on  those  deposits.  I  want  to  vote 
for  it. 

Mr.  James.  In  the  Fiftieth-eighth  Congress  an  amendment  of  that 
character  was  presented,  and  it  passed  the  Committee  of  the  AVhole, 
but  after  that  was  done  the  majority  did  not  see  fit  to  move  or  report 
to  the  House. 

Mr.  Crawford.  Mr.  Gompers  has  made  a  speech  now,  and  of  course 
we  are  interested  in  it.  I  would  like  to  ask  whether  or  not,  as  a  rep- 
resentative of  the  labor  organizations,  he  has  any  suggestions  to  make 
as  to  remedial  legislation  ? 

The  Chairman.  I  do  not  know  whether  he  came  prepared  to 
speak,  or  whether  he  would  want  to  come  at  some  future  day. 

Mr.  Gompers.  Perhaps  I  might  do  that. 

The  Chairman.  That  would  give  him  a  chance  to  think  it  over. 

Mr.  Gompers.  As  the  chairman  knows,  I  did  not  come  with  the 
anticipation  of  appearing  before  the  committee.  In  fact,  I  was  not 
aware  upon  mv  entrance  into  the  room  that  the  committee  was  in 
session  this  morning. 

Mr.  Waldo.  The  main  thing  is  this :  This  committee  wants  to  hear 
from  representatives  of  labor,  and  from  every  other  interest  in  this 
coimtiy,  any  suggestion  which  they  have  to  make  that  they  believe 
will  improve  the  present  currency  sytem.  That  is  what  we  want.  If 
you  will  do  that  sometime  I  would  like  to  have  you  do  it. 

Mr.  Gompers.  I  will  do  the  best  I  can,  I  am  a  very  busy  man.  I 
do  not  know  that  there  is  any  busier  man  anywhere.  I  do  not  sup- 
pose anj^thing  that  Congress  can  do  will  be  the  acme  of  perfection. 
You  can  not  help  it.  All  of  us  have  our  weaknesses  and  our  strength. 
We  are  not  in  ourselves  perfect,  and  as  an  aggregation  our  imperfec- 
tions may  come  out  still  more  strongly ;  but  I  think  it  is  desirable  that 
something  be  done  to  prevent  these  constantly  recurring  financial  dis- 
turbances. In  this  instance  the  panic  of  1907  stands  out  conspicuous 
from  every  other  financial  or  industrial  panic  from  which  our  country 
and  our  people  have  suffered. 

The  Chairman.  In  what  respect?    Point  it  out. 

Mr.  Gompers.  Because  at  no  time  did  the  financial  panic  strike  the 
people  when  the  people  were  so  prosperous  in  industry  and  commerce, 
and  with  all  the  advantages  that  come  to  modern  civilization.  Our 
people  were  working  and  producing  the  things  that  we  needed  upon 
which  to  live,  and  the  things  that  contributed  a  little  to  the  luxuries. 
And  in  the  midst  of  it  all,  when  we  wore  working  like  l>ees  in  the  hive, 
when  we  were  producing  the  wealth  of  the  country,  with  the  means  of 
transportation  of  this  wealth,  and  with  the  wonderful  development  of 
the  transmission  of  information,  that  ought  to  have  circumvented  and 
prevented  any  reaction  in  industry  and  commerce,  the  financial  flurry 
came.     I  do  not  know  whether  the  gentleman  who  addressed  this 


CURRENCY  LEGISLATION.  79 

committee  this  morning  knows  of  a  little  of  the  inside  history  of  that 
five-million  loan  that  was  expected  to  come  into  the  Knickerbocker 
Trust  Company  in  New  York  and  the  thing  that  interfered  with  the 
making  good  of  that  money.  I  do  not  know  that  I  want  to  repeat  it. 
I  do  not  think  I  would  want  it  to  be  spread  on  the  record.  That  is 
the  only  reason. 

Mr.  Crawford.  Have  the  laboring  people  with  whom  you  have  been 
connected  been  injured  very  materially  by  the  panic? 

Mr.  GoMPERS.  Yes,  sir;  and  after  I  have  finished  the  thought  I 
want  to  express  I  shall  be  glad  to  answer  that  question.  With  this 
wonderful  productive  power,  with  the  genius  of  the  people  of  our 
country  to  produce  and  to  produce  abundantly,  with  the  richness  of 
our  soil  and  the  fertilit}^  of  our  lands — with  all  these  things,  over- 
night we  are  struck  a  blow,  and  the  blow  is  my  answer  to  the  gentle- 
man; and  that  is,  that  a  large  number  of  establishments  have  closed 
down  or  reduced  their  force,  and  men  willing  to  work,  able  to  work, 
through  no  fault  of  their  own,  and  I  might  say  as  a  matter  of  fact 
through  no  fault  of  the  employer,  perhaps,  are  thrown  upon  the 
streets  in  idleness,  with  all  the  misery  that  that  entails.  Yes,  we 
have  suffered.  I  receive  reports  at  my  office,  the  office  of  the  Ameri- 
can Federation  of  Labor,  from  all  parts  of  the  country  and  from 
other  countries.  I  have  selected  about  eight  or  nine  organizations 
of  labor,  from  which  source  a  chart  is  drawn  giving  the  exact  number 
of  the  unemployed.  The  reason  I  say  I  have  selected  eight  or  nine 
is  because  the  organizations  that  I  have  selected  have  established  the 
best  method  to  obtain  absolutely  accurate  data  as  to  state  of  employ- 
ment, and  these  charts  I  publish,  as  the  editor  of  the  American  Fed- 
erationist,  in  that,  our  official  journal.  I  publish  that  monthly,  with 
a  comparative  chart  of  the  same  month  of  the  previous  year.  This 
plan  has  been  conducted  for  about  ten  years.  The  information  upon 
that  chart,  showing  the  state  of  unemployment,  is  absolutely  accu- 
rate. The  organizations  have  established,  for  instance,  a  system  of 
the  payment  of  a  certain  benefit  by  reason  of  unemplovment,  the 
remission  of  dues  to  the  unemployed  members,  and  these  reports 
must  be  made  from  the  various  local  unions  to  the  national  head,  and 
these  are  in  turn  reported  to  me  upon  the  payment  of  the  benefits  to 
the  unemployed. 

Mr.  Crawford.  About  what  per  cent  have  lost  employment? 

Mr.  GoMPERS.  I  can  not  tell  you  offhand.  I  could  tell  you  by  con- 
sulting the  figures.  The  figures  are  not  of  my  own  origination.  They 
are  reported  to  me.  and  I  have  them  figured  out  so  as  to  produce  the 
chart  and  the  proper  percentage. 

Mr.  Waldo.  Have  you  any  approximate  idea  as  to  how  many 
thousands  there  are  out  of  employment  now  ? 

Mr.  GoMPERS.  No,  I  could  not  tell  you ;  but  it  is  tremendous.  There 
is  one  thing  I  wanted  to  say.  I  suppose  this  is  a  very  peculiar  state- 
ment to  make  before  the  Committee  on  Banking  and  Currency;  but 
I  think  that  the  attitude  taken  by  the  organized  workingmen  of  the 
United  States,  and  followed  by  the  workingmen  of  the  country  gen- 
erally— because  even  the  unorganized  concede  the  hegemony  of  the 
labor  movement  to  orga^iizations  of  labor^ias  helped  this  country  to 
a  greater  and  more  marked  degree  than  is  recognized  at  this  time. 
During  previous  eras  of  financial  panic  men  were  laid  off.  One  of 
the  first  things  that  an  employer  would  resort  to  was  a  reduction  in 


80  CURRENCY   LEGISLATION. 

■wages.  The  workingmen  were  poorly  organized,  if  organized  at  all, 
and  had  no  power  of  resistance,  and  the}'  Avere  easy  marks.  They  had 
to  yield.  Their  A^ielding  sim-ply  reduced  their  consuming  power,  the 
power  of  consurnption  of  things  produced,  and  to  that  same  extent 
threw  out  of  employment  more  men.  Wages  were  constantly  reduced, 
and  it  was  nibbling,  nibbling  at  wages,  with  one  employer  competing 
with  the  other  employer  and  nibbling  the  wages  until  they  were 
forced  down  to  a  lower  standard  of  living  and  until  the  reaction 
would  come.  We  have  said  that  that  is  not  the  way  out ;  that  to  re- 
duce wages  is  false  economy.  It  is  simply  prolonging  and  accentu- 
ating the  period  of  depression.  By  maintaining  the  wages  of  the 
employed  it  prevents  the  further  accentuation  of  the  panic  or  indus- 
trial crisis  produced  by  continually  reducing  the  power  of  consump- 
tion of  the  great  mass  of  the  jDeople  of  the  things  jDroduced.  I  just 
want  to  leave  that  thought,  even  though  it  may  not  be  geiTnane  to 
the  solution  of  your  problem. 

(After  an  informal  discussion  among  the  members  of  the  commit- 
tee, the  committee  adjourned,  subject  to  the  call  of  the  chairman.) 

[Washington  Post,  Sunday,  November  3,  1907.] 

LABOR  IS   ASKED   TO   AID — MK.   GOMPERS   SUGGESTS   PURCHASE   OF   GOVERNMENT   BONDS 

TO   RELIEVE   STKINGENCY. 

Samuel  Gompers,  president  of  the  American  Federation  of  Labor,  issued  the 
following  statement  yesterday  relative  to  tlie  financial  situation  : 

"  Of  course  we  all  realize  that  there  is  stringency  of  the  circulating  medium — 
money.  That  is,  there  is  an  insufficient  amount  of  currency  to  carry  on  the 
enormously  increased  production  of  the  past  year  and  the  means  for  its  gen- 
eral distribution.  This  condition  has  been  manipulated  by  the  so-called 
financiers.  The  whole  entire  '  financial  flurry '  of  the  past  two  weeks  is  noth- 
ing more  or  less  than  a  gamblers'  panic. 

"  In  my  judgment,  labor  and  civic  organizations  which  have  money  in  safety- 
deposit  vaults  would  do  a  world  of  good  to  defeat  the  gamblers'  scheme  by  help- 
ing to  relieve  the  bona  fide  business  world  if  this  money  were  withdrawn  and 
invested  in  United  States  Government  bonds. 

"At  the  same  time,  it  is  urged  upon  all  employers  of  labor  not  to  attempt 
false  measures  of  supposed  relief  of  the  present  situation  by  wage  reduction. 
In  similar  financial  situations  in  the  past  such  a  policy  has  simply  resulted 
in  making  conditions  worse  and  more  acute,  and  prolonging  them.  There 
is  neither  necessity  nor  wisdom  in  reducing  wages  as  a  way  out  of  the  situa- 
tion.   Moreover,  labor  will  not  tolerate  it." 


Committee  on  Banking  and  Currency, 

PIousE  OF  Representatives, 

Washington^  D.  G.^  Friday^  January  31,  1908. 

The  committee  met  at  10:30  o'clock  a.  m. 

Present,  Representatives  Prince  (acting  chairman).  Powers,  Mc- 
Morran,  Weems,  McCreary,  Hayes,  Weeks,  McKinney,  Pujo,  Glass, 
Gillespie,  James,  Crawford,  and  McHenry. 

Present  also,  W.  V.  Cox,  esq.,  John  L.  Hamilton,  esq.,  Hon.  E.  J. 
Hill,  Representative  from  Connecticut,  and  others. 

STATEMENT  OF  W.  V.  COX,  PRESIDENT  OF  THE  SECOND  NATIONAL 
BANK  OF  WASHINGTON,  D.  C. 

The  Acting  Chairman.  Mr.  W.  V.  Cox  is  present  and  would  like 
to  present  some  resolutions  to  the  committee. 

Mr.  Cox.    Mr.  Chairman  and  gentlemen,  at  a  meeting  of  the 

The  Acting  Chair3Ian.  Excuse  me,  Mr.  Cox.  Let  me  ask  you 
Avhere  your  home  is? 

Mr.  Cox.  My  home  is  in  Washington.  D.  C.  I  am  president  of  the 
Second  National  Bank  of  Washington  and  a  member  of  the  currency 
commission  of  the  American  Bankers'  Association. 

The  Acting  Chairman.  Have  you  been  instructed  by  that  associ- 
ation to  present  some  resolutions? 

Mr.  Cox.  I  have  not  been  instructed,  but  Mr.  Hamilton  is  also  here 
representing  that  association,  and  we  Avill  present  to  you  the  resolu- 
tions that  were  adopted  at  Chicago. 

The  Acting  Chairman.  When  were  they  adopted? 

Mr.  Cox.  About  two  weeks  ago. 

Mr.  Hamilton.  At  a  recent  meeting. 

Mr.  Cox.  At  the  last  meeting. 

Mr.  Gillespie.  That  was  the  meeting  of  the  currency  commission 
of  the  bankers'  association? 

Mr.  Cox.  Yes. 

The  Acting  Chairman.  I  have  asked  these  preliminary  questions, 
Mr.  Cox,  so  that  the  record  will  show  in  behalf  of  whom  you  appear 
and  for  what  purpose. 

Mr.  Cox.  The  resolutions  are  in  pamphlet  form.  I  do  not  know  that 
you  desire  those  read,  but  it  might  be  well  to  cover  this  and  then  let 
the  remarks  follow  to  show  the  nature  of  these  resolutions.  In  short, 
the  position  taken  by  the  currency  commission  w^as  this :  They  did  not 
favor  the  Aldrich  bill,  for  reasons  set  forth  herein;  nor  did  they  favor 
the  Fowler  bill,  for  reasons  set  forth  herein ;  but  they  did  favor  the 
bill  that  was  favorably  reported  on  by  this  committee  a  year  ago, 
when  hearing  after  hearing  had  been  held,  that  bill  to  bo  amended  in 
one  or  two  particulars — first,  making  it  lawful  money  instead  of  gold  j 
and  second,  I  think,  making  it  a  prior  lien. 

37381—08 6*  81 


82  CURRENCY   LEGISLATION. 

Mr.  McKiNNEY.  Giving  the  notes  a  prior  lien  on  the  assets  of  the 
bank? 

Mr.  Cox.  Yes,  sir;  that  is  covered  now  by  the  McKinney  bill,  which 
was  introduced  three  or  four  days  ago.  I  would  ask  that  this  report 
be  made  a  part  of  the  minutes,  and  I  will  go  over  it  if  you  desire. 

Mr.  "Weeks.  Perhaps  I  ought  not  to  ask  this  question,  if  it  is  not 
proj)er  to  answer  it.  I  would  like  to  know  if  the  commission  was  sub- 
stantially unanimous  in  its  report. 

Mr.  Cox.  I  understand  it  was. 

Mr.  Hamilton.  They  were  unanimous. 

Mr.  Cox.  I  was  not  present.  I  was  sick  at  the  time;  but  the  posi- 
tion that  the  commission  took  was  exactly  what  I  thought  it  should 
take;  and  I  had  a  letter  from  Mr.  Hepburn,  who  was  the  chairman, 
asking  me  to  go  to  Chicago  to  appear  for  him  in  the  matter.  I  have 
also  heard  from  Mr.  Talbert.  Mr.  Forgan,  and  Mr.  Wardrop — all 
members  of  the  commission. 

Mr.  McKinney.  You  have  a  number  of  these  reports? 
•  Mr.  Cox.  I  have  a  few  of  these  copies. 

Mr.  McKinney.  Have  you  enough  of  them  so  that  you  could  give 
a  copy  to  each  member  of  the  committee? 

Mr.  Cox.  I  will  see  that  all  the  gentlemen  get  copies  of  these.  I 
only  had  a  few,  and  I  brought  all  I  had — a  half  dozen.  I  think  I 
gave  you  a  copy. 

Mr.  McKinney.  You  gave  me  a  copy;  yes,  sir. 

The  Acting  CriAiR:srAx.  The  stenographer  will  include  in  the  re- 
port of  the  proceedings,  in  connection  Avith  Mr.  Cox's  remarks,  this 
report  of  the  currency  commission  of  the  American.  Bankers'  Asso- 
ciation, made  at  the  meeting  held  at  Chicago  Saturday,  January  18, 
1908,  if  there  is  no  objection  on  the  part  of  any  member  of  the  com- 
mittee. 

The  report  of  the  currency  commission  above  referred  to  is  as  fol- 
lows : 

Eepobt  of  Currency  Commission  of  American  Bankers'  Association,  made 
AT  A  Meeting  held  at  Chicago  Saturday,  January  18,  1908. 

At  a  meeting  of  the  currency  coniniission  of  the  American  Banl^ers'  Associa- 
tion, held  in  Chicago  January  18,  1908,  there  were  laid  before  it  the  Aldrich 
bill  and  the  Fowler  bill.  These  bills  were  road  section  by  section  and  dis- 
cussed, and  their  provisions  carefully  considered.  After  thorough  discussion 
the  commission  reported  as  follows : 

aldrich  bill. 

This  bill  proposes  tho  issuing  of  additional  bank  notes  based  upon  the  se- 
curity of  other  than  TTnitod  States  bonds,  namely,  obligations  of  State,  city,  or 
county,  and  first-mortgage  railway  bonds.  It  is  believed  that  this  scheme  is 
Impraclicable,  unwise,  and  financially  unsound. 

L  It  is  a  depar1in-e  from  a  safe  system  of  note  issues,  which  has  been  en- 
Joyed  since  the  foundation  of  the  national  banking  system  ;  it  is  a  step  back- 
ward to  the  condilions  which  give  rise  to  the  issuing  of  "wild-cat"  currency 
before  the  civil  war,  which  currency  was  based  upon  bonds  of  a  similar  de- 
8crlF>tir>n.  It  may  bo  the  entering  wedge  to  the  acceptance  of  undesirable  bonds 
as  socurily  for  note  issues.  There  are  recent  examples  in  the  laws  of  New 
York  State  logalizing  such  bonds  for  savings  banks. 

II.  The  1)111  would  not  aid  llio  business  i)ublic  in  obtaining  loans  from  banks 
In  time  of  stress.  In  its  i)ractical  operation  it  would  crii)ple  the  lending  power 
of  the  banks.  Inasmuch  as  it  is  not  good  banking  policy  to  hold  any  consider- 
able amounts  of  such  securities  in  the  assets  of  commercial  banks,  the  banks 
wishing  to  take  out  a  new  circulation  would  be  obliged  to  purchase  the  new 


CURRENCY   LEGISLATION.  88 

securities  or  to  borrow  tlieiii.  The  direct  means  of  obtaiuing  securities  not 
generally  held  in  the  assets  of  the  banks  would  be  found  only  by  taking  from 
their  cash  reserves  $100,000  in  lawful  money,  in  order  to  issue'  notes  of  $75,000. 
By  this  process  the  bank  would  decrease  its  lawful  reserves,  which  form  the 
basis  of  loans.  If  the  bonds  behind  these  notes  wore  borrowed  instead  of  pur- 
chased, it  would  have  the  effect  of  increasing  the  liabilities  of  the  banks,  which 
is  wrong  in  princiiile  and  pernicious  in  practice.  One  hundred  thousand  dollars 
in  lawful  reserves  would  support  loans  of  $400,000,  while  under  the  Aldrich  bill 
$100,000  taken  from  the  reserves  and  invested  in  bonds,  would  only  permit  the 
lending  of  $75,000.  Thus,  in  its  practical  operation,  it  would  seriously  impair 
the  ability  of  banks  to  meet  the  demands  of  the  borrowing  i)nblic. 

III.  This  bill  would  tend  to  induce  counties  and  municipalities  to  enlarge 
their  obligations  because  a  fictitious  bond  market  would  be  created.  It  would 
set  a  premium  upon  the  increase  of  local  indebtedness,  which  would  be  highly 
detrimental.  It  should  be  no  jtart  of  Government  legislation  to  aid  in  market- 
ing securities. 

IV.  The  necessity  of  ascertaining  definite  infornuition  as  to  population  of 
cities,  debt  limits,  valuation  of  taxable  property,  defaults,  dividends  on  rail- 
way capital,  and  all  other  technical  requirements  would  entail  such  delays  as  to 
make  the  notes  available  only  after  the  emergency  had  passed.  A  crisis  is 
short,  sharp,  and  decisive,  and  the  Aldrich  bill  is  a  remedy  offered  to  a  man 
after  recovery  or  death. 

V.  The  provision  of  the  Aldrich  bill  to  tax  such  additional  notes  6  per  cent 
will  make  their  cost  prohibitive.  Calculated  on  a  basis  of  $100,000  of  bonds 
purchased  at  par,  bearing  4  per  cent  per  annum,  and  estimating  the  lending 
rate  of  money  to  be  6  per  cent,  the  net  loss  to  banks  taking  out  such  circula- 
tion would  be  $2,000  per  annum,  or  at  the  rate  of  2  per  cent. 

Illustration. 

COST    OF    TAKING    OUT    NOTE.S    AGAIN.ST    PURCHASED    BONDS. 

$100,000  loanable  at  6  per  cent $G,  000 

Tax  at  6  per  cent  on  $75,000 4,500 

Total  cost 10,  500 

INCOME. 

4  per  cent  interest  on  $100,000  of  bonds $4,  OiX> 

Loan,  $75,000,  at  6  per  cent 4,500     ' 

Total   income S,  .500 

Net  loss 2,  000 

This  calculation  does  not  include  loss  of  interest  on  redemption  fund  nor  the 
cost  of  printing  and  redemption  of  notes.  When  the  price  of  such  bonds 
becomes  inflated  by  reason  of  their  use  as  a  basis  of  circulation,  as  in  the  case 
of  United  States  bonds,  the  cost  of  the  notes  would  be  proportionately  increased. 
If  the  bonds  were  borrowed  instead  of  purchased,  the  cost  of  notes  issued  would 
be  the  same. 

Illustration. 

COST  OF  TAKING  OUT  NOTES  AGAINST  BORROWED  BONDS. 

Tax  on  $75,000  notes  at  6  per  cent $4,500 

Interest  paid  for  use  of  $100,000  bonds  at  2  per  cent 2,000 

Total  cost 0,  500 

INCOME. 

G  per  cent  interest  on  .$75,000 4,500 

Net  loss 2,  000 


84  CUERENCY   LEGISLATION. 

Calculation  is  exclusive  of  loss  of  intei'est  on  redemption  fund  and  the  cost 
of  printing  and  redemption  of  notes. 

It  is  tlins  proven  that  should  banks  be  forced  to  take  out  these  notes,  the 
minimum  rate  to  the  borrower  would  be  the  actual  cost  of  8  per  cent,  inde- 
pendent of  any  charge  for  the  use  of  the  capital,  the  expenses  of  doing  business, 
and  the  risk  of  lending.  If  fair  allowance  be  made  for  all  legitimate  charges, 
the  net  cost  to  borrowers  would  be  as  high  as  the  prohibitive  10  per  cent  tax 
now  imposed  by  the  Government  on  State-bank  issues. 

VI.  The  high  cost  of  taking  out  these  notes  must  obviously  be  paid  by  the 
needy  borrower,  and  in  that  event  the  bill  must  be  regarded  as  a  measure 
operating  to  tax  the  customer  in  a  time  when  he  especially  requires  assistance. 
Under  normal  conditions  a  seasonal  demand,  arising  in  the  autumn,  causes  higher 
rates  of  interest,  while  under  the  operation  of  the  Aldrich  bill  the  charge  for 
currency  needed  in  those  periods  would  be  still  further  increased  to  the  bor- 
rower. The  enforced  rise  of  interest  rates  would  not  only  apply  to  loans 
effected  by  the  use  of  such  notes,  but  would  at  the  same  time  increase  the  rates 
on  the  entire  line  of  discounts  carried  by  a  bank,  thus  imposing  a  heavy  and- 
unnecessary  burden  upon  the  agricultural  and  business  interests  of  the  whole 
community.  For  these  reasons,  the  commission  finds  itself  obliged  to  express 
its  disapproval  of  the  Aldrich  bill. 

THE   FOWLEE    BILL. 

After  deliberate  consideration  of  all  the  provisions  of  House  bill  12677, 
Sixtieth  Congress,  known  as  the  new  Fowler  bill,  we  disapprove  it.  While  it 
contains  certain  meritorious  features,  it  introduces  schemes  so  far-reaching 
in  their  scope  and  touching  so  many  collateral  interests  not  germane  to  the 
real  solution  of  our  currency  difficulties  that  we  believe  its  passage  would 
unsettle  rather  than  improve  financial  conditions. 

Let  us  not  be  unmindful  of  the  fact  that  in  response  to  the  demands  of  the 
people  unsound  and  radical  legislation  has  had  its  precedents  in  our  monetary 
history.  After  the  panic  of  1873  the  demand  for  some  action  with  reference  to 
currency  was  so  strong  that  Congress  passed  a  bill  increasing  greenbacks  by 
$44,000,000,  a  project  which  was  wisely  vetoed  by  President  Grant.  After  the 
panic  of  1893  Congress  gave  its  approval  to  a  measure  providing  for  the  coin- 
age of  $55,000,000  of  silver,  which  was  vetoed  by  President  Cleveland,  who 
followed  the  excellent  precedent  established  by  President  Grant. 

In  these  two  instances  we  have  had  examples  of  hasty  measures  following 
financial  panics,  and  in  the  two  bills  herein  discussed  we  have  what  appears 
to  us  to  be  similar  unwnse  measures  following  the  i-ecent  crisis. 

PLAN    OF    AMERICAN    BANKERS'    ASSOCIATION. 

The  principles  euunciated  by  the  commission  and  approved  by  the  American 
Bankers'  Associaticm  in  convention  assembled  at  Atlantic  City  on  September 
23,  V.H>~,  have  been  at  this  time  carefully  reviewed,  and  we  are  still  firm  in 
the  belief  that  they  are  economically  sound.  We  have  accordingly  prepared 
a  plan  embodying  these  i)rinciples. 

The  difference  between  the  original  plan  of  the  commission  (embodied  in 
House  bill  23017,  SDth  Cong.)  and  the  p^'esent  plan  is  to  be  found  in  the 
provision  that  the  holder  of  a  credit  note,  instead  of  being  a  general  creditor, 
shall  have  a  i)rior  lien  on  the  assets  of  the  issuing  bank.  The  notes  thus  issued 
would  be  automatically  adjusted  in  volume  to  the  demands  for  currency. 
The  security  to  the  notes  thus  provided  by  i)ledging  the  whole  of  the  assets  of 
a  bank  would  afford  more  desirable  protection  to  ji  note  lioFder  than  a  portion 
of  those  assets  in  a  segregated  form,  and  such  notes  can  be  issued  under 
provisions  wliicli  will  insure  alisolute  safety  to  the  note  holder,  an  ami)le  supply 
of  currency  to  the  public,  relief  from  the  disturbed  conunei'cinl  conditions  such 
as  those  through  which  we  have  recently  i»:issed,  and,  linaliy,  the  certahi  retire- 
ment of  tiie  notes  when  they  have  fullilled  their  purpose  in  the  hands  of  the 
puhlif.     I'lie  i»lan  jn-ojiosed  by  the  commission   is  as  follows: 

"  Jic  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Conr/ress  assembled,  That  from  and  after  the  passage  of 
this  act  any  national  bunking  association  which  has  been  in  business  for  one 
year  and  has  ;i  surplus  fund  equal  to  twenty  per  centum  of  its  capital  may 
take  out  for  i.ssue  and  circulation  national  bank  notes  without  a  deposit  of 
United  Slates  bonds  as  now  provided  by  law.     Said  notes  shall  be  known  as 


CURRENCY   LEGISLATION.  85 

'national  bank  guaranteed  credit  notes.'  Said  notes  shall  be  issued  in  such 
form  and  denominations  and  under  such  rules  and  regulations  as  the  Comp- 
troller of  the  Currency  shall  fix.  The  amount  of  said  notes  so  taken  out  by 
any  national  banking  association  may  be  equal  to  forty  per  centum  of  the 
amount  of  its  national-bank  notes  at  any  time  outstanding,  which  are  secured 
by  the  deposit  of  Government  bonds,  but  shall  not  exceed  in  amount  twenty- 
five  per  centum  of  its  capital :  Provided,  Jioivevcr,  That  if  at  any  time  in  the 
future  the  present  projwi-tion  of  the  total  outstanding  unmatured  United  States 
bonds  to  the  total  cai)italization  of  all  national  banking  associations  in  active 
operation  shall  diminish,  then  the  authorized  issue  of  national  bank  guaranteed 
credit  notes  shall  be  increased  to  a  correspondingly  greater  percentage  of  the 
bond-secured  notes. 

"  Sec.  2.  That  every  national  banking  association  taking  out  national  bank 
guaranteed  credit  notes  in  accordance  with  the  foregoing  section  shall  pay 
to  the  Treasurer  of  the  United  States  in  the  months  of  January  and  July  a 
tax  of  one  and  one-fourth  per  centum  upon  the  average  amount  of  such 
notes  in  circulation  during  the  preceding  half  year. 

"  Sec.  3.  That  any  national  banking  association  which  has  taken  out  national 
bank  guaranteed  credit  notes  in  accordance  with  the  provisions  of  section  one 
of  this  act  may  take  out  a  further  amount  of  national  bank  guaranteed  credit 
notes  equal  to  twelve  and  one-half  per  centum  of  its  capital,  but  It  shall  pay 
to  the  Treasurer  of  the  United  States  in  the  mouths  of  January  and  July  a 
tax  of  two  and  one-half  per  centum  upon  the  average  amount  of  such  notes 
in  circulation  during  the  preceding  half  year. 

"  Sec.  4.  That  the  total  amount  of  bank  notes  issued  by  any  national  banking 
association,  including  national  bank  guaranteed  credit  notes  taken  out  in 
accordance  with  the  provisions  of  this  act,  shall  not  exceed  the  amount  of 
its  paid-up  capital. 

"  Sec.  5.  That  any  national  banking  association  situated  and  doing  business 
in  a  central  reserve  city  or  a  reserve  city  shall  at  all  times  have  on  hand  in 
lawful  money  of  the  United  States  an  amount  equal  to  at  least  twenty-five 
per  centum  of  its  national  bank  guaranteed  credit  notes  in  circulation,  and 
every  other  national  banking  association  shall  at  all  times  have  on  hand  in 
lawful  money  of  the  United  States  an  amount  equal  to  at  least  fifteen  per 
centum  of  its  guaranteed  credit  notes  in  circulation:  Provided,  however.  That 
any  national  banking  association  situated  and  doing  business  in  a  reserve  city 
may  keep  one-half  of  its  lawful  money  reserve  on  deposit  in  a  national  bank 
in  a  central  reserve  city  or  in  a  reserve  city  and  that  every  national  banking 
association  situated  and  doing  business  outside  of  a  central  reserve  city  or  a 
reserve  city  may  keep  three-fifths  of  its  lawful  money  reserve  on  deposit  in  a 
national  bank  in  a  central  reserve  city  or  in  a  reserve  city. 

"  Sec.  6.  That  the  taxes  upon  national  bank  guaranteed  credit  notes  provided 
for  in  sections  two  and  three  of  this  act  shall  be  paid  in  lawful  money  to  the 
Treasurer  of  the  United  States.  Said  taxes,  when  received,  shall  constitute  a 
guaranty  fund  to  redeem  the  notes  of  failed  banks  and  to  pay  the  cost  of  print- 
ing and  current  redemption. 

"  Sec.  7.  That  when  any  national  banking  association  takes  out  any  national 
bank  guaranteed  credit  notes  for  issue  and  circulation,  it  shall  deposit  with  the 
Treasurer  of  the  United  States  in  lawful  money  an  amount  equal  to  five  per 
centum  thereof.  The  amount  so  deposited  shall  be  placed  in  the  guaranty  fund 
for  the  purposes  thereof.  But  said  amount  shall  be  refunded  to  the  respective 
banks  as  soon  as  the  taxes  piovided  for  in  sections  two  and  three  of  this  act 
maintain  said  guaranty  fund  above  five  per  centum  of  the  maximum  amount  of 
national  bank  guaranteed  credit  notes  taken  out  for  issue  and  circulation,  but 
that  no  bank  shall  withdraw  any  part  of  its  de])osit  of  said  five  per  centum  until 
it  shall  have  to  its  credit  in  said  fund  more  than  five  jier  centum. 

"  Sec.  8.  That  the  Comptroller  of  the  Currency  shall  designate  certain  cities 
conveniently  located  in  the  various  sections  of  the  United  States  for  the  cur- 
rent daily  redemption  of  said  national  bank  guaranteed  credit  notes;  he  shall 
fix  rules  and  regulations  for  such  redemption ;  and,  before  authorizing  and  per- 
mitting any  national  banking  association  to  take  out  for  issue  and  circulation 
any  national  bank  guaranteed  credit  notes,  ho  shall  require  such  bank  to  make 
arrangements  satisfactory  to  him  for  the  current  daily  redemption  of  such  notes 
in  every  x-edemption  city  so  designated.  ■" 

"  Sec.  9.  That  said  national  bank  guaranteed  credit  notes,  issued  in  accord- 
ance with  the  provisions  of  this  act.  shall  be  received  at  par  in  all  |)arts  of  the 
United  States  in  payment  of  taxes,  excises,  public  lands,  and  all  other  dues  to 


86  CURRENCY   LEGISLATION. 

the  United  States,  except  duties  on  imports ;  and  also  for  all  salaries  and  other 
debts  and  demands  owing  by  the  United  States  to  individuals,  corporations,  and 
associations  within  the  United  States  except  interest  on  public  debt  and  in  re- 
demption of  the  national  currency.  Said  notes  shall  be  received  upon  deposit 
and  for  all  purposes  of  debt  and  liability  by  every  national  banking  association 
at  par  and  without  charge  of  whatsoever  Ivind. 

"  Sec.  10.  That  the  holder  of  any  national  baulv  guaranteed  credit  note  shall 
have  a  prior  lien  on  the  assets  of  the  national  banliing  association  issuing  it 
and  on  the  statutory  liability  of  shareholders. 

"  Sec.  11.  That  upon  the  failure  of  a  national  banking  association  all  out- 
standing national  bank  guaranteed  credit  notes  taken  out  by  it  in  accordance 
with  the  provisions  of  this  act  shall,  upon  presentation  to  the  United  States 
Treasurer,  be  paid  in  lawful  money  out  of  the  guaranty  fund ;  but  the  United 
States  Treasurer  shall  recover  in  lawful  money  from  the  assets  of  the  failed 
bank  the  amount  of  the  guaranteed  credit  notes  of  such  bank  outstanding  at 
the  time  of  failure,  and  the  same  shall  be  paid  into  the  guaranty  fund  as  pro- 
vided in  section  ten  of  this  act. 

"  Sec.  12.  That  any  national  banking  association  desiring  to  retire  its  national 
bank  guaranteed  credit  notes  or  to  go  into  liquidation  shall  pay  into  the  guar- 
anty fund  an  amount  of  lawful  money  equal  to  the  amount  of  its  national  bank 
guaranteed  credit  notes  then  outstanding. 

"  Sec  13.  That  any  national  banking  association  desiring  to  take  out  national 
bank  guaranteed  credit  notes  and  having  notes  outstanding  in  excess  of  sixty- 
two  and  one-half  per  centum  of  its  paid-up  capital,  to  secure  the  payment  of 
which  United  States  bonds  have  been  deposited,  may,  upon  the  deposit  of  law- 
ful money,  redeem  such  excess  without  reference  to  the  limitation  of  nine 
million  dollars  each  month  prescribed  in  the  act  approved  March  fourth,  nineteen 
hundred  and  seven." 
Respectfully, 

The  Currency  Commission  of  the 

American  Bankers'  Association. 

Mr.  Cox.  Mr.  Chairman,  I  would  ask  that  you  hear  Mr.  Hamil- 
ton, one  of  the  pioneers  in  credit  currency,  who  has  been  before  you 
on  other  occasions,  and  who  was  formerly  the  president  of  the 
American  Bankers'  Association. 

STATEMENT  OF  JOHN  L.  HAMILTON,  ESQ.,  OF  HOOPESTON,  ILL. 

The  Acting  Chairman.  Please  state  where  your  home  is,  Mr. 
Hamilton. 

Mr.  Ha:milton.  Hoopeston,  111. 

The  Acting  Chairman.  What  position  did  you  hold  in  connection 
with  the  American  Bankers'  Association? 

Mr.  HA:\riLTON.  You  mean  at  the  present  time? 

Tlie  Acting  Chairman.  No;  what  position  did  j^ou  hold? 

Mr.  Hamilton.  I  was  president  of  the  association  two  years  ago. 

The  Acting  Chairman.  For  what  years? 

Mr.  Hamilton.  For  the  years  1905-6. 

The  Acting  Chairman.  Are  yon  now  a  meml)er  of  that  associa- 
tion? 

Mr.  Haaiilton.  Yes,  sir;  T  am  a  member  of  the  association,  and  a 
member  of  the  currency  commission,  and  executive  committee. 

The  AcTiNc  CiiAimiAN.  And  as  a  member  of  the  currency  com- 
mission that  rej)()rted  favorably  upon  a  bill  at  a  meeting  held  at 
Chicago.  111.,  January  18,  1908,  you  are  now  appearing  before  us? 

M  r.  H  A  M I LTON .  Yes,  sir. 

The  Acting  Chairman.  Proceed  in  your  own  way,  Mr,  Hamilton. 

Mr.  Hamilton.  The  commis.sion  met  in  Chicago  pursuant  to  the 
call  of  the  chairman  and  took  up  the  two  principal  measures  that 


CUEKENCy    LEGISLATION.  87 

were  before  Cono;ress,  as  we  imdeistood  at  that  time.  There  were 
several  others  before  Conf^ress,  but  the  two  that  were  attracting  the 
greatest  attention  were  tlie  Aldricli  1)111  and  the  bill  proposed  by 
your  chairman,  Cono-ressman  Kowler.  After  discussion  of  these 
measures  for  the  greater  part  of  the  day  a  committee  was  appointed 
which  prepared  the  resolutions  that  you  have  before  you. 

The  Acting  Chairman.  One  question,  please.  Were  there  many 
bankers  present  at  that  meeting? 

Mr.  Hamilton.  Nine  of  the  15  members  of  this  committee  were 
present  at  the  meeting. 

The  Acting  Chairman.  Can  you,  from  memory,  name  those  men, 
or  have  yon  any  data  from  which  you  can  name  them,  and  tell  from 
what  sections  of  the  country  they  came? 

Mr.  Hamilton.  Yes,  sir;  I  think  I  can  name  every  one  of  them. 
Mr.  James  B.  Forgan,  president  of  the  First  National  Bank  of 
Chicago,  was  chairman  of  the  meeting,  in  the  absence  of  Mr.  Hep- 
burn, who  had  gone  to  P^urope;  but  Mr.  Hepburn  gave  out  a  letter 
outlining  his  objections  to  these  measures,  which  was  practically  the 
same  as  the  report ;  Joseph  T.  Talbert,  vice-president  of  the  Com- 
mercial National  Bank  of  Chicago;  Mr.  Charles  H.  Huttig,  presi- 
dent of  the  Third  National  Bank,  at  St.  Louis;  Mr.  Luther  Drake, 
president  of  the  Merchants'  National  Bank  of  Omaha ;  Mr.  Myron  T. 
Herrick.  chairman  of  the  board  of  directors  of  the  Society  for  Sav- 
ings of  Cleveland,  and  ex-governor  there;  Mr.  Robert  Wardrop, 
president  of  the  People's  National  Bank  of  Pittsburg;  Mr.  Arthur 
Keynolds,  president  of  the  Des  Moines  National  Bank  of  Des 
Moines,  Iowa;  Mr.  Sol  Wexler,  vice-president  of  the  Whitney  Na- 
tional Bank  of  New  Orleans,  and  myself. 

Mr.  Hayes.  And  Mr.  Perrin? 

Mr.  Hamilton.  Mr.  Perrin  was  not  present.     He  was  sick. 

The  Acting  Chairman.  I  only  wanted  to  show  on  the  record  the 
character  of  the  men  who  were  present  and  the  sections  of  the 
country  represented. 

Mr.  Hamilton.  I  will  say  in  this  connection  that  Mr.  Perrin  and 
Mr.  Wade,  who  were  both  members  of  the  committee,  were  not  pres- 
ent, yet  they  have  since  indorsed  the  action  of  the  committee,  as  have 
also  Mr.  Cox,  Mr.  McCord,  and  Mr.  Swinney.  They  are  the  five  who 
were  not  present.  There  were  six  who  were  not  present,  counting 
the  chairman,  Mr.  Hepburn.  We  had  in  addition,  at  that  meeting, 
Mr.  Lacey,  president  of  the  Bankers'  National  Bank  of  Chicago; 
George  M.  Reynolds,  president  of  the  Continental  National  Bank, 
and  Mr.  George  E.  Roberts,  president  of  the  Commercial  National 
Bank.  They  were  present  and  took  part  in  the  discussion  on  this 
measure,  and  while  they  are  not  recorded  in  connection  with  this,  yet 
they  were  of  the  same  opinion  as  the  committee. 

Mr.  Gillespie.  How  long  were  j'^ou  in  session? 

Mr.  Hamilton.  We  were  in  session  all  day  Saturday,  from  about 
9  o'clock  in  the  morning  until  about  6  or  7  o'clock  at  night. 

The  committee  feel  that  this  is  the  best  measure  that  has  been  so 
far  before  the  American  people.  This  measure  has  been  presented, 
as  you  perhaps  know,  to  a  great  many  State  bankers'  associations 
and  a  great  many  different  organizations,  as  well  as  to  the  member- 
ship of  the  American  Bankers'  xVssociation.  It  has  the  approval  of 
the  executive  council  of  the  Bankers'  Association   of  Illinois  and 


88  CURRENCY   LEGISLATION. 

of  the  American  Bankers'  Association.  This  bill  was  brought  before 
the  convention  held  at  Atlantic  City  and  indorsed  at  that  meeting. 

Mr.  Gillespie.  Last  summer? 

INIr.  Hamilton.  Last  suinnuer.  The  secretary  sent  out  notices  to 
all  the  members  of  the  association  that  one  day  would  be  set  apart 
for  the  discussion  of  this  measure,  giving  all  those  who  had  any 
objections  to  present  an  opportunity  to  be  there  and  present  their 
objections.  The  notice  was  not  only  sent  to  members  of  the  asso- 
ciation but  to  bankers  who  were  not  members,  so  that  anyone  might 
have  an  opportunity  to  be  there.  It  is  true  that  the  measure  was 
gotten  up  between  the  meetings  of  the  association,  and  we  deemed 
it  advisable  as  a  commission  to  present  it  to  that  organization  and 
secure  its  approval.  There  were  but  two  men  who  appeared  upon 
the  floor  of  the  convention  in  opposition  to  the  measure.  They 
were  given  full  liberty  to  talk  as  long  as  they  chose  and  as  much 
as  they  chose  on  the  subject.  After  listening  to  these  gentlemen 
and  the  arguments  in  favor  of  the  measure,  which  were  mainly 
presented  b}^  the  chairman.  ]Mr.  Fowler,  but  one  other  member  of 
the  commission,  Mr.  Perrin,  taking  part  in  it,  they  were  adopted. 
You  may  have  noticed  a  criticism  in  the  newspapers,  claiming  that 
there  were  a  limited  number  present  at  the  meeting.  There  were 
about  150  bankers  present  in  the  room  when  the  vote  was  taken, 
and  12  of  those  voted  against  the  adoption  of  this  measure.  How- 
ever, the  notice  had  been  sent  out  and  all  bankers  had  been  given 
an  opportunity  to  be  there  and  to  vote  against  it  if  they  were  inter- 
ested in  it. 

ISIr.  Gillespie.  What  is  the  membership  of  the  association  that 
attended  the  meeting  at  Atlantic  City?  What  'was  the  largest 
attendance  on  any  one  day? 

Mr.  Hamilton.  The  attendance  that  morning  was  perhaps  the 
largest  we  have  had.  I  should  judge  there  must  have  been  in  the 
neighborhood  of  2,000  present  at  the  morning  meeting,  and  this 
was  taken  up  at  that  meeting. 

Mr.  Gillespie,  And  1.50  were  present  when  this  matter  was  acted 
on? 

Mr.  Hamilton.  Yes:  they  had  drifted  out. 

Mr.  McCreary.  But  thev  were  on  notice  that  this  was  to  be  taken 
up? 

Mr.  Hamilton.  That  day  was  set  apart  for  it.  It  was  the  special 
order,  and  nothing  else  was  set  for  that  day.  There  were  some  other 
matters  considered — amendments  to  the  constitution,  etc. — but  this 
was  the  only  thing  on  the  programme  published  by  the  association 
for  that  day  for  their  consideration. 

Mr,  Gillespie.  You  have  seen  the  pamphlet  that  has  been  sent 
around  by  Mr.  Frame? 

Mr.  Hasiilton.  Yes,  sir. 

Mr.  Gillespie.  With  liis  speech,  giving  a  recital  of  the  proceedings 
of  the  convention? 

Mr.  Hamilton.  The  speech  published  hj  Mr.  Frame  and  sent 
broadcast  throughout  the  country  was  not  delivered  in  the  con- 
vention. 

Mr.  McCreary.  It  was  canned  goods?  It  was  a  speech  that  he 
did  not  deliver,  but  had  leave  to  print? 


CURRENCY   LEGISL.\TION.  89 

Mr.  Hamilton,  Yes.    He  did  not  deliver  that  speech. 

Mr.  James.  Do  you  think  if  he  had  delivered  it  that  it  would  have 
affected  the  proceedings  any? 

Mr.  Hamilton.  Not  at  all.    I  do  not  think  so. 

Mr.  Gillespie.  Did  he  speak? 

Mr.  Hamilton.  He  spoke  in  a  general  way,  and  apologized  for 
taking  up  the  time  of  the  convention,  although  he  had  unlimited 
time  at  his  disposal.  Mr.  Frame  has  made  challenges  to  members 
of  the  commission  in  his  printed  speech  that  he  did  not  make  in  the 
nieeting.  The  challenges  would  have  been  answered  had  he  done  so, 
but  for  some  unknown  reason  the  speech  was  permitted  to  be  printed 
as  though  he  had  delivered  it.  The  fact  is  that  that  speech  has  never 
been  delivered  in  full  at  any  meeting. 

Mr.  Weeks.  Is  it  printed  at  the  expense  of  the  association  or  at 
his  own  expense? 

JNIr.  Hamilton.  I  think  it  is  largely  at  his  own  expense,  although 
it  is  a  part  of  the  proceedings  of  the  American  Bankers'  Association 
in  their  published  report. 

Mr.  Gillespie.  Is  he  a  member  of  the  association  ? 

Mr.  Hamilton.  Oh,  yes;  he  is  a  member.  His  bank  is  a  member 
of  the  association. 

Mr.  McCreary.  Is  he  a  member  of  the  commission  ? 

Mr.  Hamilton.  He  is  not  a  member  of  the  commission.  Now, 
going  back  to  the  bill,  we  haA'e  been  very  much  disappointed  as  a 
committee  because  the  bill  was  not  introduced  earlier  in  Congress, 
supposing,  of  course,  that  it  would  be.  This  bill  has  back  of  it  the 
support  of  three-fourths  of  the  national  banks  outside  of  the  re- 
serve cities,  and  it  has  the  indorsement.  I  think,  of  the  majority  of 
the  banks  in  the  reserve  cities.  I  know  particularly  as  to  the  banks 
outside  of  the  reserve  cities  for  the  reason  that  I  took  this  matter  up 
individually  with  those  institutions.  The  more  we  consider  the 
measure  the  better  we  think  it  is  for  the  interest  of  the  country.  We 
believe  it  will  give  to  the  country  a  safe  currency,  one  that  will  be 
automatic,  one  that  will  meet  with  the  demands  of  the  times  and  be 
the  means  of  preventing,  to  a  large  extent,  panics.  We  realize  that 
no  measure  will  absolutely  do  this,  no  matter  how  it  is  framed,  and 
no  matter  who  gets  it  up. 

This  bill  provides — do  you  want  me  to  go  into  the  general  pro- 
visions of  the  bill,  all  the  way  through? 

The  Acting  Chairman.  Yes. 

Mr.  Pujo.  That  is  the  McKinney  bill? 

Mr.  Hamilton.  Yes. 

Mr.  Pujo.  Yes,  I  would  like  to  have  you  do  so. 

Mr.  James.  You  need  not.  of  course,  refer  to  the  technical  details. 

The  Acting  Chairman.  State  it  in  your  own  way. 

Mr.  Hamilton.  This  bill,  under  section  1,  provides  that  a  national 
bank  before  it  can  issue  such  notes  must  have  been  in  business  a  year 
and  must  have  a  surplus  equal  to  20  per  cent  of  its  capital.  It  also 
provides  that  it  must  have  out  a  bond-secured  circulation  equivalent 
to  G2^  per  cent  of  its  capital,  and  after  that  it  may  issue  credit  notes 
equal  to  40  per  cent  of  the  bond-secured  circulation  outstanding.  It 
may  then  issue 

Mr.  McKinney.  Explain  why  you  took  that  G2-1  per  cent  as  the 
basis. 


90  CURRENCY    LEGISLATION. 


]Mr.  HAMiLT0'3^The  62^  per  cent  basis,  as  was  explained  last  year 
in  connection  with  this  measure,  was  arrived  at  as  being  the  avail- 
able bonds  held  by  national  banks  that  might  be  used  for  bond- 
secured  circulation;  and  it  was  done  not  only  to  protect  the  national 
banks  who  are  holders  of  these  securities  but  to  protect  the  individual 
holders.  The  Government  having  established  the  precedent,  in  the 
original  enactment  of  our  national-bank  act  to  provide  a  market  for 
its  securities,  and  the  jjeople  having  faith  in  this  class  of  securities 
as  to  the  note  issue,  we  did  not  think  it  was  advisable  to  depart  en- 
tirely from  that  precedent.  It  also  assures  a  future  market  for 
Government  securities. 

(At  this  point  an  informal  discussion  took  place  as  to  where  in 
the  bill  the  provision  as  to  62^  per  cent  was  to  be  found.) 

Mr.  McKiNXEY.  I  will  say  that  I  introduced  the  identical  text 
that  was  sent  to  me.  If  that  provision  is  not  clear  enough  to  express 
the  meaning  of  the  commission,  that  can  very  easily  be  changed.    As 

1  understand,  the  desire  of  the  commission  is  to  preserve  the  present 
character  of  the  bond-secured  notes,  and  to  keep  it  up  to  that  amount, 
and  not  to  change  from  a  bond-secured  circulation  entirely. 

Mr.  Hamilton.  Yes. 

The  Acting  Chairman.  Proceed,  Mr.  Hamilton. 

Mr.  Hamilton.  The  bill  provides  further  that  after  the  banks 
have  out  62^  per  cent  of  their  capital  in  bond-secured  notes  they  may 
then  issue  25  per  cent  of  their  capital  in  notes  taxed  at  2^  per  cent, 
and  they  may  issue  an  additional  12J  per  cent  in  credit  notes  bearing 
a  tax  of  5  per  cent. 

Mr.  James.  This  first  issue  bears  a  tax  of  2^  per  cent? 

Mr.  Hamilton.  The  first  issue  bears  a  tax  of  2^  per  cent.    Section 

2  of  the  bill  provides  for  the  2^  per  cent  tax.  Your  committee 
amended  that  last  year  and  made  it  3  per  cent.  We  went  back  to 
the  original  idea  and  made  it  2^,  believing  in  the  theory  that  a  low 
tax  was  better  than  a  high  tax. 

Mr.  James.  As  I  understand  it,  under  this  bill  you  require  them 
to  deposit  a  5  per  cent  reserve  to  redeem  these  notes  issued  originally, 
in  gold. 

Mr.  Hamilton.  Yes,  sir ;  in  the  guarant}^  fund. 

Mr.  James.  You  make  the  first  tax  2|  per  cent,  and  you  keep  that 
tax  in  the  fund  until  it  becomes  5  per  cent,  and  then  you  let  the 
banks  withdraw  the  5  per  cent  in  gold? 

Mr.  Hamilton.  Yes. 

Mr.  James.  But  what  becomes  of  the  tax  which  has  accumulated 
over  the  5  per  cent,  which  has  enabled  the  banks  to  withdraw  the 
original  5  per  cent,  when  a  bank  desires  to  liquidate  or  to  quit 
business  t 

Mr.  Hamilton.  That,  I  presume,  would  remain  in  the  hands  of 
the  United  States  Treasury. 

Mr.  James.  But  it  is  in  the  hands  of  the  Treasury  now  as  a  trust 
fund.  Is  there  any  provision  in  the  bill  that  it  shall  be  covered  into 
the  Treasury? 

Mr.  Hamilton.  No;  there  is  no  provision  of  that  kind. 

Mr.  Ja:\ies.  Do  you  think  it  ought  to  go  into  the  Treasury? 

Mr.  Hamilton.  I  really  think  tliere  should  be  a  limit  to  the  amount 
of  the  guaranty  fund  established  in  some  manner;  but  in  the  measure 


CURRENCY  LEGISKA.TION.  91 

there  is  no  limit.  It  is  left  an  open  question.  You  have  now  your 
annual  tax  from  year  to  year,  and  that  accumulates 

Mr.  James.  It  accumulates  after  the  5  per  cent 

Mr.  McKiNNEY.  The  tax  keeps  on. 

Mr.  James.  When  it  gets  over  the  5  per  cent,  what  becomes  of  it? 

Mr.  Hamilton.  There  is  no  j^rovision  for  that. 

Mr.  McKiNNEY.  It  keeps  piling  up.  It  does  not  go  back  to  the 
banks,  and  it  is  not  limited  to  the  5  ])er  cent. 

Mr.  Hamilton.  We  have  not  undertaken  to  dispose  of  that  surplus. 

Mr.  Weeks.  As  long  as  you  are  speaking  of  the  tax  on  this  cur- 
rency, I  Avould  like  to  ask  two  or  three  questions  about  it,  in  a  general 
way." 

Mr.  Hamilton.  Yes,  sir. 

Mr.  Weeks.  Do  you  not  think  we  have  currency  enough  in  ordi- 
nary times,  say  forty-five  Aveeks  out  of  the  ,year,  under  present 
conditions  ? 

Mr.  Hamilton.  Yes,  I  do. 

Mr.  Weeks.  Well,  do  you  think  under  this  method  of  taxing  the 
currency  that  it  would  all  of  it  ever  be  retired  ?  Would  not  some  of 
it  be  in  circulation  all  the  time? 

Mr.  Hamilton.  I  think  there  is  bound  to  be  some  of  it  in  circula- 
tion, and  I  think  it  good  policy  that  it  should  be  in  circulation. 

Mr.  Weeks.  Then  it  is  adding  to  the  volume  of  our  present  circula- 
tion all  the  time,  to  a  certain  extent. 

Mr.  Hamilton.  I  do  not  think  that  the  amount  would  be  material. 

Mr.  Weeks.  Why  would  it  not  be  material  ? 

Mr.  Hamilton.  It  depends  on  your  redemption  facilities. 

Mr.  Weeks.  Why  would  it  not  be  material,  if  the  banks  can  make 
a  profit  out  of  it? 

Mr.  Hamilton.  The  ability  of  the  banks  to  make  a  profit  depends 
upon  the  length  of  time  the  notes  will  remain  in  circulation,  of  course. 

Mr.  Weeks.  Of  course. 

Mr.  Hamilton.  And  we  do  not  believe  that  these  notes  can  remain 
in  circulation  for  a  longer  period  than  thirty  days  under  the  most 
favorable  circumstances.  Consequently  the  profits  would  be  so  mea- 
ger that  the  notes  would  naturally  be  retired. 

Mr.  Weeks.  The  same  notes  will  not  remain  longer  than  thijty 
days,  but  some  other  notes  will  go  right  out  to  take  their  places,  will 
they  not? 

Mr.  Hamilton.  They  may,  and  they  may  not;  because  when  the 
tide  of  currency  is  toward  the  commercial  centers,  it  is  practically 
impossible  to  keep  out  any  considerable  quantity  of  these  notes. 
There  are  certain  seasons  of  the  year  when  the  money  accumulates  in 
the  commercial  centers — the  actual  bills. 

Mr.  Weeks.  Let  us  take  an  instance.  You  issue  notes,  and  they 
come  into  Mr.  Cox's  bank.  There  is  a  profit  in  issuing  the  notes,  and 
Mr.  Cox  sends  yours  in  for  redemption  and  issues  his  own,  does  he 
not  ? 

Mr.  Hamilton.  Certainly. 

Mr.  Weeks.  Is  not  that  going  to  be  perpetual,  that  method  of 
keeping  the  notes  out  as  long  as  there  is  any  profit  in  doing  it?  So 
that  although  a  note  may  be  and  will  be  on  an  average  retired  in 
thirty  days,  does  it  not  mean  that  the  same  volume  of  notes  is  going 
10  be  out  all  the  time,  provided  there  is  a  profit  in  issuing  them? 


92  CURRENCY   1,EGTSLATI0N. 

Mr.  Ha:hiltox.  Ko,  it  does  not  mean  that,  for  the  reason  that  it 
would  be  impossible  for  Mr.  Cox,  residing  in  a  commercial  center,  to 
keep  out  any  considerable  quantity  of  those  notes.  They  would  be 
immediately  sent  back  for  redemption;  and  if  he  should  put  out 
$50,000  in  notes,  to-morrow,  or  to-day,  in  the  city  of  Washnigton,  he 
is  practically  sure  to  find  those  in  the  clearing  house  to-morrow  morn- 
ing for  redemption,  the  same  as  he  finds  the  drafts  issued  on  the  in- 
stitution or  his  cashier's  checks  there  for  redemption. 

Mr.  Ja^ies.  Suppose  it  was  in  a  country  like  I  represent,  where  we 
have  no  clearing  house ;  where  we  have  a  national  bank  in,  say,  one 
town  and  two  in  another,  and  money  is  worth  6  or  8  per  cent.  Would 
it  not  be  profitable  for  the  banks  to  issue  these  notes  at  2^  per  cent  if 
they  can  lend  the  money  at  6  per  cent  and  keep  it  out?  AVhen  people 
in  my  country  get  money,  they  do  not  rush  to  put  it  in  bank.  They 
keep' it  in  their  pockets  "to  a  certain  extent.  When  the  banks  would 
lend  the  money  at  6  and  even  at  8  per  cent  in  Kentucky,  in  my  district, 
would  not  that  money  stay  out  ? 

Mr.  Hamilton.  I  do  nol  think  that  money  will  stay  out  to  any  con- 
siderable extent  in  any  locality.     The  whole  principle,  I  think,  that 
the  banking  system  of  the  United  States  is  based  on  is  the  checking 
system  rather  "than  on  the  note-issuing  system. 
"  Mr.  James.  That  is  true  in  the  great  cities. 

Mr.  Hamilton.  We  are  encouraging  the  people  from  the  country — 
you  and  I  are  both  from  the  country 

Mr.  James.  But  that  is  not  true  in  the  country. 

Mr.  Hamilton.  But  we  are  encouraging  the  people  to  build  up  the 
deposits.     That  is  what  they  are  aiming  for. 

Mr,  James.  All  the  time;  yes. 

Mr.  Hainiilton.  Your  banks,  no  matter  what  kind  they  may  be, 
national.  State,  private,  or  what  not,  are  encouraging  the  people  to 
dei)osit  their  money  in  the  banks  and  to  use  their  individual  checks 
in  preference  to  currency. 

Mr.  James.  But  right  there  let  me  say  that  this  panic  has  donte 
more  to  discourage  that  than  anything  on  earth,  and  you  Avill  find 
that  it  will  take  years  to  get  the  people  back  to  the  standard  of  con- 
fidence that  they  had  before  the  panic  in  depositing  their  money. 

Mr.  Hamilton.  There  is  no  question  about  that.  You  are  abso- 
lu'tely  right  in  the  propositio  )  that  this  panic  has  been  one  of  the 
most  diastrous  to  the  banking  interests  that  ever  occurred,  and  it  has 
shaken  the  confidence  of  the  public  in  those  institutions. 

Xow,  if  this  measure  had  V)een  enacted  a  year  a.oo  it  Avould  have 
prevented  the  occurrence  of  this  panic.  The  condition  in  your  sec- 
tion of  the  country  was  the  same  as  the  condition  with  me.  I  am 
the  only  member  of  our  commission  who  does  not  reside  in  a  clearing- 
house center.  The  result  of  this  panic  and  the  trouble  it  brought 
upon  us  was  tliat  we  could  not  get  actual  ciuTency  from  the  commer- 
cial centers.  In  some  localities  the  demand  for  currency  was  abused 
by  tlic  country  bank-ers. 

Mr.  Wkkks.  Do  ytu  not  think  it  was  generally  abused? 

Mi-.  HAAFir/roN.  I  do  not  tliink  it  was  generally  abused. 

Mr.  Weeks.  Does  not  the  statement  of  the  national  banks  prove 
that? 

Mr.  Haves.  T  think  it  does. 


CURRENCY  LEGISLATION".  93 

Mr.  James.  Was  it  not  abused,  not  so  much  by  the  country  bank- 
ers as  by  the  fellow  who  had  the  country  bankers'  money  on  deposit? 

Mr.  Hamilton.  There  are  two  sides  to  that  (juestion.  We  who  live 
in  the  country  are  inclined  to  coudenni  our  city  brother.  Of  course 
the  city  banker  had  his  difficulties  to  contend  with,  and  I  think  w4ien 
you  sift  both  sides  of  the  question  down  they  were  both  indiscreet 
in  their  actions  in  that  respect ;  but,  nevertheless,  our  people  were 
unduly  alarmed  by  the  fear  that  they  could  not  get  money  from  the 
reserve  institutions;  and  in  every  conmnmity  where  the  barks  had 
to  pay  a  limited  amount  of  cash  to  their  customers  those  communities 
have  been  seriously  crippled  by  the  conditions  that  have  prevailed, 
and  confidence  has  been  disturbed  in  those  communities.  Now,  going 
back  to  the  idea  of  the  country  ba  ik  note  remaining  out  longer  than 
the  note  of  the  commercial  center.  It  might  perhaps  remain  out  a 
little  longer,  but  if  these  notes  are  sent  in  by  any  institution  (as  is 
contemplated  by  the  Commission,  but  not  embodied  in  the  report) 
through  the  Post-Office  Department,  for  credit  without  expense  to 
the  bank  remitting,  it  will  immediately  send  those  notes  home  for 
retirement ;  and  I  think  that  it  might  be  a  wise  provision  to  have  that 
expense  borne  by  the  bank  of  issue.  This  would  be  an  extra  induce- 
ment to  the  banks  wdio  are  not  in  the  national  system,  sending  in 
these  notes  for  redemption. 

Mr.  James.  The  reason  I  asked  that  question  was  this:  Take  my 
home  town.  There  the  bank  suspended  specie  payment  and  only  paid 
10  per  cent  on  a  man's  deposit  for  over  sixty  days.  It  is  a  tobacco 
community.  They  commenced  buying  tobacco,  and  when  they  paid 
their  money  out  to  the  farmers,the  farmers  would  not  put  that  money 
in  bank.  They  were  alarmed,  and  they  took  the  money  home  with 
them.  Now,  if  they  were  satisfied  with  this  currency,  would  they  not 
do  that  same  thing? 

Mr.  Hamilton.  If  they  did  take  this  kind  of  currency  home,  it 
would  not  hurt,  for  it  would  only  stay  a  limited  time  before  it  would 
get  back  in  the  natural  channels  of  business,  the  same  as  has  occurred 
under  the  present  conditions. 

Mr.  Hayes.  In  other  words,  they  would  spend  it? 

Mr.   Hamilton.  Yes. 

Mr.  jA:\rES.  But  you  must  not  presume  on  the  theory  that  the  farm- 
ers have  to  spend  all  they  get. 

Mr.  Hamilton.  It  is  not  an  inflajtion  as  long  as  it  is  kept  hidden. 

Mr.  Gillespie.  The  point  is  that  there  is  a  profit  to  the  bank  as 
long  as  a  man  keeps  it  in  his  pocket. 

Mr.  Weeks.  What  I  wanted  to  ask  you,  further,  was  whether  in 
your  judgment  it  is  desirable  for  banks  to  make  any  considerable 
profit  on  the  issuing  of  circulation? 

Mr.  Hamilton.  I  do  not  think  it  is  desirable  that  they  should  make 
any  considerable  profit:  no.  sir.  But  I  think  there  should  be  some 
profit  in  it. 

Mr.  Weeks.  I  do  not  think  that  any  man  w^ith  any  reason  would 
contend  that  there  should  not  be  a  profit  in  any  business  enterprise: 
but  circulation  is  so  intimately  associated  with  everything  in  our 
business  life  that  it  is  necessary.  The  bank  is  supposed  to  make  its 
profit  out  of  its  commercial  business,  or  the  business  of  loaning 
money,  which  is  its  business.  Do  you  not  think  that  the  profit  in 
issuing  circulation  should  be  reduced  to  the  minimum? 


94  CURRENCY   LEGISLATION. 

Mr.  James.  Especially  an  emergency  circulation. 

Mr.  Weeks.  I  will  confine  it  to  that. 

Mr.  Ha:\[ilton.  Yes;  I  thmk  it  should  be,  and  I  think  it  is  reduced 
to  the  minimum  in  this  measure. 

Mr.  Weeks.  I  think  the  present  circulation  is  reduced  to  the  mini- 
mum.    I  agree  with  you ;  but  do  you  think  it  is  in  this  bill  ? 

Mr.  Hamilton.  I  think  so;  yes,  sir.  Now,  take  this  bill,  the  origi- 
nal bill  that  was  presented  by  your  committee,  with  the  3  per  cent  tax, 
with  money  loaning  at  7  per  cent.  I  have  had  it  figured  by  the  actu- 
ary of  the  Comptroller's  Office  and  by  other  men,  and  it  shows  a  net 
profit  to  the  bank,  providing  that  such  notes  remain  out  on  an  average 
of  thirty  days,  the  same  as  they  do  in  Canada,  of  1.95  per  cent. 

Mr.  Weeks.  Do  you  not  think  that  is  too  much  ? 

Mr.  Hamilton.  I  do  not  think  it  is  too  much,  because  I  do  not 
think  that  they  will  be  able  to  maintain  the  full  amount  in  circula- 
tion for  thirty  days. 

Mr.  Weeks.  Suppose  it  remained  out  sixty  days  instead  of  thirty 
days.     Wliat  would  be  the  profit?     Do  you  know? 

Mr.  Hamilton.  I  do  not  knoAv.     Of  course  it  would  be  greater. 

Mr.  Weeks.  What  I  wanted  especially  to  get  your  opinion  on  was 
whether  jon  think  it  desirable  to  have  more  currency  than  Ave  have 
now  for  normal  times,  and  Avhether  you  think  it  is  desirable  that 
banks  should  make  any  considerable  profit  out  of  circulation.  You 
know,  of  course,  that  there  is  a  very  Avidespread  prejudice  against 
anybody  making  any  monej^  in  this  countrj-  just  noAV. 

Mr.  Hamilton.  Certainly. 

Mr.  Weeks.  Especially  the  banks. 

Mr.  Hamilton.  Yes. 

Mr.  Weeks.  And  it  seems  to  me  that  there  is  a  point — my  preju- 
dices are  not  against  the  banks,  as  you  knoAv — Avhere  Ave  can  properly 
draw  the  line  in  legislation.  The  business  of  the  bank  is  to  loan 
money,  and  to  make  its  profits  out  of  loaning  money,  and  Avhen  you 
make  money  out  of  a  priAdlege  Avhich  comes  from  the  Government, 
and  which  affects  all  the  people  Avhether  they  are  borroAvers  of  money 
or  not,  it  seems  to  me  that  should  be  reduced  to  a  minimum;  that  that 
is  good  policy  and  good  business  from  the  standpoint  of  the  Govern- 
ment. For  that  reason  I  think  myself  that  the  tax  on  the  circulation 
is  too  small,  and  I  Avanted  your  definite  ideas  on  that  subject,  becaiL^ 
you  have  had  large  experience. 

Mr.  Gillespie.  The  bank  stand's  to  furnish  accommodation  to  its 
customers.  These  credit  notes  do  not  represent  the  capital  of  the 
bank.  They  only  put  the  bank  in  the  same  position  to  use  these  notes 
as  otherAvisc  they  could  use  their  deposit  privileges.  To  tax  the  bank- 
er's note  stands  upon  no  other  plane  than  to  tax  the  right  of  the  de- 
posit privileges.  These  notes  can  be  used  and  put  into  circulation,  but 
as  long  as  they  are  in  the  teller's  draAver,  in  the  bank's  possession, 
they  represent  nothing  but  a  signed  piece  of  paper.  They  become 
nothing  until  they  go  out  in  circulation.  The  bank  stands  to  furnish 
this  accommodation  to  commerce,  just  as  it  gives  the  right  to  draAv  a 
check,  and  to  require  a  bank  to  pay  a  tax  Avhcn  it  puts  out  one  of 
these  credit  notes  is  on  no  dill'ereut  plane  Avhatever  from  requiring  the 
bank  to  pay  a  tax  Avhenever  it  opens  up  a  deposit  account  Avith  a 
customer. 


CUKEENCY  LEGISLATION".  95 

Mr.  Weeks.  I  should  be  perfect!}'  willing  to  argue  that  jioint  with 
my  friend  from  Texas  at  the  pro})er  time. 

Mr.  Gillespie.  And  every  cent  of  lax  that  you  put  on  the  bank  it 
is  going  to  recover  in  self-defense.  It  is  going  to  put  it  on  commerce. 
No  other  country  that  issues  this  kind  of  credit  ever  put  a  tax  upon 
it,  except  in  Canada,  where  the}-  put  a  Muall  tax  on  to  create  a  guar- 
anty fund. 

Mr.  Weeks.  I  am  getting  at  it  from  another  viewpoint  entirely. 
In  my  judgment  we  have  ample  currency  for  ordinary  needs,  and  any 
further  issue  of  currency  means  a  tendency  to  inflation.  I  do  not  use 
that  term  technically  either.  I  Avant  to  be  sure  that  we  are  not  going 
to  have  any  further  issue  of  currency  as  a  permanent  issue.  I  want  it 
to  be  temporary,  and  for  that  reason  I  want  the  tax  large  enough  to 
immediately  and  suddenly  drive  that  currency  in.  That  has  nothing 
to  do  with  the  technical  question  which  Mr.  Gilespie  has  raised,  and 
in  wdiich  I  think  he  is  probably  right ;  and  if  we  did  not  have  half  a 
dozen  other  kinds  of  circulation  I  would  agree  with  him  absolutely. 
But  having  the  other  circulation,  we  must  figure  from  that  stand- 
point, and  not  from  the  standpoint  that  we  w^ould  figure  from  if  we 
were  starting  to  entirel}'  revolutionize  our  currency  s^'stem.  That  is 
what  I  am  trying  to  get  at. 

Mr.  Crawford.  You  want  an  ordinary  increase,  do  you  not  ?  We 
started  about  ten  years  ago  with  $*22,  and  now"  we  have  $32. 

Mr.  Weeks.  I  understand,  but  w^e  have  circulation  enough,  in  my 
judgment. 

Mr.  Crawford.  But  what  about  the  increase  in  business  and  popu- 
lation ? 

Mr.  Weeks.  The  circulation  has  nothing  whatever  to  do  with  the 
business  in  ordinary  times. 

Mr.  Crawford.  Do  you  not  think  the  increase  of  circulation  since 
1896  has  had  something  to  do  with  the  business  prosperity  of  the 
coinitry  ? 

Mr.  Hayes.  You  gentlemen  are  taking  up  Mr.  Hamilton's  time.  I 
want  to  hear  him,  if  you  will  excuse  me. 

Mr.  Powers.  I  want  to  ask  a  few  questions  in  reference  to  this.  I 
was  one  of  the  Republican  Members  who  refused  to  report  your  bill 
last  year,  for  the  reason  that  I  believed  it  was  very  largely  an  infla- 
tion measure,  based  substantially  upon  the  views  that  were  advanced 
by  the  gentleman  from  Massachusetts,  Mr.  AVeeks.  I  see  no  sufficient 
reason  to  believe  that  this  would  be  a  flexible  currency,  that  it  would 
come  back  after  it  had  been  put  out.  Knowing  that  the  conditions 
are  not  the  same  here  as  they  are  in  Canada,  that  w-e  have  more  money 
in  the  various  State  banks  than  we  have  in  these,  I  want  to  ask  you,  if 
these  bills  are  equally  good  wdth  any  of  them  (and  they  must  be  or 
there  is  no  use  in  putting  them  out),  what  reason  would  any  State 
bank,  trust  company,  or  savings  bank  have  for  selecting  them  out  and 
sending  them  for  redemption  instead  of  continuing  to  pay  them  over 
their  counters,  if  they  have  no  bills  of  their  own  to  get  out  ? 

Mr.  Hamilton.  They  would  have  no  particular  interest  in  return- 
ing these  bills  unless  there  were  some  provision  made  for  their  return, 
either  through  the  plan  outlined  by  the  Comptroller's  office  or  else 
embodied  in  the  measure. 


96  CURRENCY    LEGISLATION. 

Mr.  Powers.  Would  they  not  continue,  as  long  as  they  were  good, 
to  use  them  and  pay  them  out,  and  would  they  attempt  to  return  one 
of  these  any  quicker  than  they  would  a  national-bank  note  secured  by 
bond  ? 

Mr.  Hamilton.  It  is  contemplated,  you  know,  that  that  part  of  the 
detail  shall  be  covered  by  the  Comptroller  of  the  Currency  in  the 
rules  that  he  makes  governing  these  redemption  centers. 

Mr.  Powers.  I  understand 

Mr.  Hamilton.  And  there  is  a  provision  here  that  such  expenses 
may  be  paid  out  of  this  fund,  you  know. 

Mr.  Powers.  But  what  inducement  is  there  for  a  trust  company 
having  an  amount  of  money  consisting  partly  of  bond-secured  cur- 
rency and  partly  of  this  currency  to  select  these  bills  and  send  them  to 
a  reserve  center  to  be  redeemed  as  long  as  one  is  equally  as  good 
as  the  other,  and  one  goes  as  current  as  the  other? 

Mr.  Hamilton.  It  depends,  of  course,  upon  the  location  of  the 
institution  largely. 

Mr.  Po AVERS.  But  one  is  just  as  good  as  the  other. 

Mr.  Hamilton.  If  it  is  in  tlie  country,  the  country  institutions 
would  send  those  bills  to  their  correspondents  for  credit,  because 
they  can  send  them  w^ithout  the  expense. 

Mr,  Powers.  Why  should  a  trust  company  do  it,  or  why  should 
any  bank  do  it,  unless  it  wants  to  get  its  own  bills  out? 

Mr.  Hamilton.  The  reason  they  should  do  it  is  that  it  is  natural 
for  people  in  any  line  of  business  to  avail  themselves  of  any  profit 
they  can  make  by  saving  the  expense  of  express  on  currency  shipped. 
It  is  also  to  the  interest  of  all  bankers  to  keep  down  the  circulation 
as  much  as  possible. 

Mr.  Powers.  Perhaps  you  may  not  recall  it.  but  I  asked  substan- 
tially this  same  question  of  Secretary  Shaw,  as  to  what  he  believed 
with  reference  to  the  bills  returning  within  a  reasonable  time,  and 
he  said  he  did  not  think  over  10  per  cent  would — and  I  concurred 
Mnth  him — until  it  got  worn  out.  Now.  let  me  ask  you  one  more 
question.  Can  you  not  in  some  way  recall  those  bills,  so  that  instead 
of  this  being  an  inflation  measure  that  would  increase  the  volume  of 
currency — I  agree  with  Mr.  Weeks  that  we  do  not  want  it  increased 
in  ordinary  times — it  can  be  issued  as  emergency  currency,  and  then 
returned  to  the  banks?    I  like  your  bill  in  many  respects. 

Mr.  Hamilton.  Of  course  our  measure  might  be  amended,  fixing 
the  date  to  which  the  note  should  remain  out,  but  I  do  not  think  it 
advisable  to  do  so. 

Mr.  Powers.  How  do  you  propose  to  have  the  bank  redeem  the 
notes?    By  depositing  other  notes? 

Mr.  Hamilton.  In  lawful  money  or  circulation  notes. 

Mr.  Pf)WERS.  I  suppose  you  would  permit  them  to  be  redeemed  by 
depositing  lawful  money? 

Mr.  Hamilton.  Yes. 

Mr.  Powers.  I  care  not  how  large  the  tax  is,  it  will  not  affect  the 
circuhition  unless  you  impound  the  lawful  money  and  keep  it  by 
itself,  not  to  be  pnid  out  until  the  bills  come  in.  A  tax  will  not  reduce 
the  ciiculation  under  the  existing  laws,  will  it? 

Mr.  Hamilton.  What  you  mean  is,  if  the  money  is  deposited  with 
the  Treasury  Department  and  it  again  deposits  it  Avith  some  other 
institution? 


CURRENCY   LEGISLATION.  97 

Mr.  Powers.  No  matter  if  the  bank  has  been  relieved  of  the 
interest,  the  excessive  currency  or  inflation  is  still  out. 

Mr.  Hamilton.  That  is  a  feature  that  we  have  not  attempted  to 
regulate,  because  it  applies  to  the  management  of  the  Treasury  De- 
partment. We  did  not  think  it  advisable  to  embody  any  feature  of 
that  kind  in  this  measure. 

Mr.  Powers.  Now,  you  said  that  if  this  had  been  adopted  last  year 
it  would  have  prevented  the  present  panic.  I  rather  think  it  would, 
but  having  once  issued  several  hundred  millions  more  this  year,  how 
would  it  have  been  next  year?  AVould  we  not  have  it  worse  than  this 
year,  if  it  should  prove  to  be  an  inflation  i-ather  than  an  elastic  cur- 
rency ? 

Mr.  Hamilton.  I  do  not  think  it  can  be  an  inflation. 

Mr.  Powers.  I  can  not  see  how  it  is  possibly  anything  else. 

Mr.  Hamilton.  Because  the  banking  experience  of  the  Commission 
shows  that  the  money  accumulates  during  certain  periods  of  the  year. 
The  national-bank  notes  to-day  accumulate  in  reserve  cities  and  they 
do  not  know  what  to  do  with  them. 

Mr.  Powers.  I  understand  that. 

Mr.  Hamilton.  These  notes  are  bound  to  go  in  just  the  same  as 
the  national-bank  notes  go  in. 

Mr.  Powers.  I  admit  that  a  certain  percentage  will  get  in,  but 
most  institutions  will  not  send  these  in  in  preference  to  getting  the  in- 
terest, and  the  amount  of  currencj^  that  is  sent  in  will  not  be  very 
large  as  compared  with  the  great  volume  of  currency  of  the  country. 
I  can  not  see  any  reason  why  jou  can  assume  that  these  notes,  if  they 
are  equally  valid,  and  if  the  people  receive  them  equally  readily  as 
any  other  put  in  circulation  under  our  peculiar  banking  sj'stem  in 
this  country,  shall  come  back,  except  very  slowly.  How  long  does  it 
take  for  national-bank  notes  to  come  back — two  or  three  years,  on 
an  average,  does  it  not? 

INIr.  Hamilton.  Seven  hundred  and  thirty  days,  I  believe,  is 
claimed  to  be  the  period. 

Mr.  Powers.  I  can  not  see  how  they  can  come  back  more  rapidly, 
or  but  very  little  more  rapidly,  than  the  present  currency.  If  that  is 
so,  then  this  becomes  thereby  not  an  elastic  currency,  but  an  infla- 
tion currency,  which  we  do  not  want;  and  that  has  been  my  objection 
to  your  bill. 

The  Acting  Chairman.  Would  it  not  be  well  for  us  to  hear  Mr. 
Hamilton  through,  because  our  time  is  running.  I  do  not  think  Mr. 
AYeeks's  questions  have  been  answered,  have  they? 

]\Ir.  Weeks.  I  think  he  has  answered  all  he  cares  to. 

The  Acting  Chairman.  Go  on  with  the  other  sections  of  the  bill 
then,  Mr.  Hamilton, 

Mr.  Hamilton.  Section  3  of  this  measure  provides  for  the  5  per 
cent  tax  increase,  which  would  not  be  issued  until  after  the  other  2^ 
per  cent  notes  had  been  in  circulation,  as  is  natural.  The  total 
amount  of  the  bank-note  issue,  as  provided  in  this  measure,  shall  not 
exceed  the  capital  of  the  institution.  There  has  been  a  great  deal  of 
criticism  of  this  particular  section  of  the  bill  in  different  sections  of 
the  country.  Natonal  banks  having  out  their  full  quota  have  objected 
to  that  provision,  claiming  that  this  measure  would  not  give  them  any 
relief,  because  they  can  not  issue  any  additional  circulation.  How- 
ever, I  think  that  is  a  very  important  provision  in  this  measure,  that 

37381—08 7* 


98  CURRENCY   LEGISLATION. 

there  should  be  a  limit  to  the  amount  of  notes  that  may  be  issued. 
And  ATe  have  provided  in  the  last  section  of  the  measure  so  that 
national  banks  having  out  the  full  quota  of  issue  maj^  reduce  it  down 
to  62^  per  cent  of  their  capital  without  reference  to  the  law  that  now 
exists  limitino;  the  amount  of  redemption  to  $9,000,000  a  month. 

Section  5  of  the  measure  provides  for  the  legal  reserve  to  be  carried 
as  against  these  notes,  requiring  the  same  reserve  that  is  now  carried 
against  deposits  in  the  different  kinds  of  banking  institutions,  as 
designated  under  our  national  banking  act.  In  other  words,  it  pro- 
vides the  same  requirement  as  to  the  reserve  in  the  central  reserve 
cities,  that  25  per  cent  be  carried  in  their  vaults ;  and  the  same  pro- 
vision as  to  reserve  cities,  requiring  that  they  must  maintain  a  reserve 
of  25  per  cent,  one-half  of  which  may  be  carried  with  a  central  reserve 
city ;  and  the  same  provision  as  to  the  country  banks,  which  require  a 
15  per  cent  reserve,  three-fifths  of  which  may  be  carried  with  reserve 
cities  or  central  reserve  cities. 

Mr.  Weeks.  Do  you  not  think  it  advisable  to  increase  the  amount 
of  the  reserve  which  country  banks  should  carry  in  their  own  vaults? 
Mr.  Hamilton.  I  do  not.  I  think  that  would  be  a  serious  mistake. 
I  believe  that  the  average  country  bank  carries  a  greater  reserve  most 
of  the  time  than  the  law  contemplates  they  should  carry,  and  if  you 
should  increase  the  reserve  that  they  should  carry  to  two-thirds  in- 
stead of  two-fifths  3^ou  would  be  tying  up  $110^000,000  of  additional 
money  in  the  hands  of  the  countiy  institutions  that  would  be  abso- 
lutely useless  in  ordinary  times. 

Mr.  James.  In  times  of  panic  have  they  not  got  that  tied  up  any- 
how, in  reserve  and  central  reserve  cities  ? 

Mr.  Hamilton.  They  have  it  tied  up  in  central  reserve  cities  to  a 
certain  extent,  yes;  but  after  a  few  daj^s  of  the  experience  that  we 
have  just  had,  the  greatest  difficulty  we  all  had  to  contend  with  was 
that  we  did  not  have  enough  credits  in  the  reserve  cities  rather  than 
not  enough  cash. 

Mr.  Pujo.  I  would  like  to  ask  Mr.  Hamilton  a  question.     The  au- 
thorized circulation  that  could  be  taken  out  by  national  banks  in  this 
country  approximates  $900,000,000,  does  it  not? 
Mr.  Hamilton.  Yes,  sir. 

Air.  Pujo.  And  the  actual  circulation  of  bank  notes  approximates 
$600,000,000,  does  it  not? 
Mr.  Hamilton.  Yes. 
Mr.  Hayes.  Nearly  $700,000,000. 

Mr.  Hamilton.  The  last  report.  December  23,  1907,  was  $601,000,- 
000. 

Mr.  Pujo.  During  the  financial  panic  of  1907,  with  a  duty  of  one- 
lialf   of   1    per   cent   every   six   months   on    circulation,   would   not 
5fJi^00,000,000  of  additional  circulation  to  the  volume  of  currency  dur- 
ing the  last  panic  have  prevented  this  financial  panic? 
Mr.  Hamilton.  I  think  so. 

Mr.  Pujo.  Did  not  the  clearing-house  certificates  issued  during  the 
last  panic  amount  to  only  $150,000,000  approximately  ? 
Mr.  Hamilton.  I  have  never  seen  the  figures  on  that. 
^  Mr.  Pujo.  I  am  referring  to  the  report  of  the  Comptroller  of  the 
Currency,  at  page  60,  showing  that  clearing-house  certificates  were 
issued  amounting  to  $154,000,000. 

Mr.  Ha:\iilton.  I  have  never  seen  that  report. 


CUKRENCY  LEGISLATION.  99 

Mr.  Pujo.  Did  the  issuance  of  these  clearing-house  certificates 
have  a  tendency  to  prevent  runs  on  banks,  and  to  protect  the  financial 
interests  of  the  country,  generally  ? 

Mr.  Hamilton.  I  think  the  issuing  of  the  clearing-house  certifi- 
cates was  an  excellent  movement  to  stop  the  panic,  but  I  do  not  be- 
lieve the  issuing  of  the  clearing-house  certificates,  or  the  thought 
that  clearing-house  certificates  are  likely  to  be  issued,  would  be  the 
means  of  preventing  a  panic. 

Mr.  Pujo.  Could  not  the  national  banks  in  this  country,  by  taking 
out  the  circulation  authorized  by  law.  have  prevented  the  occurrence 
of  this  panic  in  1907  ? 

Mr.  Hamilton.  Certainly,  sir;  there  was  plentv  of  margin  in  it, 
I  think. 

Mr.  Pujo.  Could  they  not.  after  the  appearance  of  the  panic, 
have  prevented  it  by  an  application  for  the  issuance  of  the  currency 
to  which  the  banks  were  entitled  under  the  law? 

ISIr.  Hamilton.  The  greatest  difficulty  was  that  they  could  not  get 
the  bonds  to  put  up  to  secure  the  bond-secured  circulation. 

Mr.  Pujo.  Is  it  not  further  a  fact  that  there  is  not  sufficient  profit 
in  the  circulation  for  them,  according  to  their  viewpoint,  which  has 
prevented  them  in  the  past  from  taking  out  the  circulation  to  which 
the  J'  were  entitled  under  the  law  ? 

Mr.  Hamilton.  Under  your  present  national-bank  system  of  de- 
positing Government  bonds  as  securit}^  for  circulation  there  is  no 
inducement  for  a  national  bank  to  issue  these  notes  for  the  sake  of 
profit,  the  reason  being  that  the  higher  the  rate  of  interest  that  pre- 
vails in  the  community  the  less  profit  there  is  in  national  bank  note 
circulation.  In  other  words,  at  an  8  per  cent  basis  they  would  be 
losing  money. 

Mr.  Pujo.  Then,  your  view,  upon  a  study  of  this  question,  is  that 
the  banks  could  not  have  prevented  this  panic  because  they  did  not 
have  the  bonds  to  obtain  the  additional  circulation  to  which  they  are 
entitled  under  the  law  ? 

Mr.  Hamilton.  They  do  not  carry  them,  and  do  not  have  them; 
yes. 

(After  an  informal  discussion  the  committee,  at  12  o'clock  m..  took 
a  recess  until  2  o'clock  p.  m.) 

AFTER   RECESS. 

STATEMENT  OF  JOHN  L.  HAMILTON.  ESQ.— Continued. 

Mr.  Hamilton.  jNIr.  Chairman,  I  think  we  were  on  section  5  when 
we  took  the  recess,  relative  to  the  legal  reserve  to  be  carried  against 
the  credit  notes  to  be  issued. 

The  Chairman.  I  think  you  had  finished  that. 

Mr.  Hamilton.  It  is  contemplated  in  connection  with  this  that  the 
same  reserve  may  be  used  in  the  issue  of  a  credit  note  in  case  of 
emergency  that  is  now  used  to  secure  a  deposit,  as  against  the  de- 
posits. In  other  words,  when  there  were  heavy  withdrawals  of 
deposits  you  would  have  a  larger  legal  reserve  on  hand  that  might 
be  used  to  secure  these  notes,  and  credit  notes  would  be  put  out  in 
lieu  of  the  withdrawing  deposits. 


100  CURRENCY   LEGISLATION. 

Section  6  of  this  bill  provides  for  the  creation  of  a  guaranty  fund 
to  be  held  by  the  Treasury. 

Mr.  Gillespie.  You  still  provide,  I  see,  in  the  other  section,  that 
they  continue  to  keep  their  reserve  on  deposit  with  other  banks  in 
reserve  and  central  reserve  cities. 

Mr.  Hamilton.  We  make  no  change  whatever  in  the  present  law 
relative  to  deposits. 

Mr.  Gillespie.  I  believe  it  is  your  opinion  that  no  change  should 
be  made  ? 

Mr.  Hamilton.  I  do  not  think  it  advisable  to  make  a  change  in 
that  case. 

Mr.  AYeeks.  If  you  increase  the  amount  of  the  reserve  which  the 
country  banks  should  keep,  do  you  think  you  would  be  justified  in 
reducing  the  amount  of  the  reserve  which  the  central  banks  should 
be  compelled  to  keep,  in  the  same  proportion,  or  in  similar  propor- 
tion ? 

Mr.  Gillespie.  Say,  a  flat  20  per  cent  all  around. 

Mr.  Hamilton.  Well,  frankly,  I  will  say  that  I  have  never  given 
that  subject  any  thought,  and  I  do  not  know  how  it  would  apply. 
As  to  the  loclring  up  of  the  reserve  money  of  the  country,  that  is 
something  that  would  have  to  be  demonstrated  by  figuring  it  out. 
I  could  not  tell,  in  an  oifhand  answer.  * 

Mr.  Weeks.  What  do  3'ou  think  the  effect  would  be  if  you  com- 
pelled the  country  banks  to  keep  10  per  cent  in  their  vaults,  if  the 
increase  of  4  per  cent,  which  it  would  be,  amounted  to  one  hundred 
millions,  as  3'ou  stated  this  morning? 

Mr.  Hamilton.  One  hundred  and  ten  millions. 

Mr.  Weeks.  Well,  something  of  that  sort ;  and  reducing  the  amount 
to  be  kept  by  the  central  reserve  banks  5  per  cent,  which  would 
amount  to  the  same  amount  of  money.  What  do  you  think  the  effect 
would  be  on  the  countiy,  and  on  the  banking  interests?  Have  you 
thought  of  that? 

Mr.  Hamilton.  I  have  not  given  that  subject  any  thought  what- 
ever, because  the  question  has  never  arisen  in  my  mind  before;  but 
I  think  that  it  is  not  desirable  to  change  the  reserve  of  the  country 
bank.  I  do  not  think  the  recent  conditions  show  that  it  is  necessary 
that  there  should  be  an  increased  reserve  exacted  of  them,  held  by 
the  institutions. 

Mr.  McKiNNEY.  Down  in  my  locality  the  reserves  were  away 
down  at  that  critical  time. 

Mr.  Gillespie.  You  mean  of  the  country  banks? 

Mr.  McKinney.  Of  the  country  banks.  There  was  no  way,  ap- 
parently, in  which  they  could  be  strengthened.  They  could  not  get 
currency. 

Mr.  McMoRRAN.  Is  not  that  the  best  reason  in  the  world  why  the 
country  banks  should  require  a  larger  reserve  instead  of  a  smaller 
reserve  ? 

Mr.  McKiNNEY.  I  always  thought  that  if  a  country  bank  did  not 
have  a  proper  reserve  it  was  through  carelessness  of  their  own.  A 
panic  never  jumps  on  you  without  a  minute's  notice. 

Mr.  CiiLLESPiE.  Of  course  they  had  plenty  of  signs  of  this  coming 
on. 

Mr.  McMoiufAN.  Our  banks  never  allow  themselves  to  get  below 
20  per  c<Mit.    'J'hcy  giv(!  as  a  reason  for  that  that  they  are  not  as  well 


CUKRENCY  LEGISLATION.  101 

situated  as  the  city  banks,  with  the  chiss  of  paper  they  are  dealing 
in.  They  can  not  realize  on  it  and  depend  on  its  payment  as  well  as 
the  city  banks  can,  and  therefore  they  feel,  as  a  matter  of  safety,  that 
they  should  keep  an  extra  5  per  cent. 

Mr.  Hamilton.  Every  bank  carries  the  reserve  in  the  country  a 
good  deal  in  relation  to  the  convenience  to  commercial  centers  in  order 
to  get  currency.  They  are  governed  more  by  that  than  by  almost 
anything  else;  but  I  think  there  are  very  few  banks  with  actually 
more  than  the  10  per  cent  of  the  legal  reserve  on  hand;  but  I  do  not 
think  it  is  good  policy  to  amend  your  law  and  make  it  mandatory. 

Mr.  Gillespie.  Do  you  think  that  G  per  cent  reserve  in  a  country 
bank  or  any  other  kind  is  sufficient  to  inspire  confidence  to  the  patrons 
of  the  bank  ?  They  begin  to  figure.  This  panic  was  a  panic  of  men 
who  could  figure,  you  know.  The  Comptroller  of  the  Currency  in 
his  statement  calls  attention  to  the  reserves  being  too  small.  They 
begin  to  figure  what  this  bank  had  to  meet  its  demands  absolutely, 
and  there  they  find  a  little  old  6  per  cent.  It  engenders  uneasiness. 
They  begin  to  want  to  get  their  money  out,  especially  if  they  see 
signs  of  danger.  Things  begin  to  get  tight,  with  interest  rates  run- 
ning up,  and  talk  of  bad  assets  and  dishonest  management,  and  all 
that,  and  they  begin  to  figure  on  the  condition  of  the  bank,  and  here, 
this  bank  has  only  6  per  cent  as  a  reserve.  Is  not  that  too  small  to 
inspire  confidence? 

Mr.  Hamilton.  That  does  not  enter  into  the  general  mind  of  the 
public. 

Mr.  Gillespie.  It  enters  into  the  mind  of  the  man  who  can  calcu- 
late and  Avho  knows  something  about  banking;  and  this  was  his 
panic. 

Mr.  Hamilton.  This  was  a  bankers'  panic. 

Mr.  Gillespie.  This  was  a  panic  of  men  who  could  figiire  on  the 
situation. 

Mr.  Hajiilton.  But  it  did  not  affect  the  small  country  places  until 
after  the  commercial  centers  went  on  a  clearing-house  basis. 

Mr.  Gillespie.  The}"  suspended  their  paj-ments;  or  if  it  had  gone 
on,  they  would  have. 

Mr.  Hamilton.  ^Miich? 

Mr.  Gillespie.  The  small  country  banks.  In  all  probability  a 
great  many  of  them  would  have  had  a  run  like  the  others,  and  there 
they  are  caught  with  a  little  old  6  per  cent. 

Mr.  Hamilton.  I  beg  your  pardon.  A  majority  of  the  country 
banks  in  the  national  system,  even  at  the  present  time,  did  not  sus- 
pend payment. 

Mr.  McHenry.  That  was  true  up  in  my  district. 

Mr.  McKiNNEY.  That  was  true  in  my  region. 

Mr,  Hamilton.  They  did  not  suspend  at  all.  There  is  only  here 
and  there  a  place  throughout  the  States.  Take  it  in  Illinois.  A  ma- 
jority of  the  banks  in  Illinois,  outside  of  Chicago,  Peoria,  Blooming- 
ton,  and  Quincy,  I  think,  did  not  suspend  cash  payment. 

Mr.  Gillespie.  I  know  that  little  towns  in  my  district,  of  two  or 
three  thousand  people,  suspended. 

The  Acting  Chairman.  We  did  not. 

Mr.  McHenry.  In  the  large  cities  in  Pennsylvania,  at  Pittsburg, 
and  Philadelphia,  for  a  short  time,  and  Harrisburg,  we  had  suspen- 


102  CURRENCY   LEGISLATION. 

sions;  but  at  Scranton  and  Wilkes-Barre  none  of  our  banks  were 
affected  at  all.  . 

Mr.  McCreary.  Thej-  did  not  suspend,  but  they  were  on  the  verge. 
If  it  had  kept  up  a  week  or  ten  days  longer  they  would  have  sus- 
pended. I  can  speak  of  one  large  town  there,  particularly,  where  the 
pay  of  the  Reading  kept  everything  going,  but  the  moment  they  ran 
into  paving  cash  the  banks  would  have  felt  it. 

Mr.  McKiNNEY.  Mr.  Gillespie,  do  3'ou  mean  the  reserve  that  the 
banks  have  in  their  own  offices  ? 

Mr.  Gillespie.  Yes ;  in  their  own  vaults. 

Mr.  McKixNEY.  I  was  connected  with  a  bank  for  a  good  many 
years.  As  a  rule  I  think  we  kept  in  our  office  only  about  6  or  8  per 
cent,  but  in  the  hands  of  our  corresjDondent,  and  immediately  avail- 
able, we  almost  never  ran  below  50  per  cent  of  cash  loans.  We  did 
not  keep  more  in  our  office  for  the  reason  that  we  considered  it  hardly 
safe.  Of  course,  in  small  country  towns  there  is  not  the  police  pro- 
tection that  you  have  in  large  towns.  We  carried  insurance  against 
burglary  and  all  that,  but  this  6  or  8  per  cent  we  found  adequate  to 
meet  all  the  needs  we  had. 

Mr.  Gillespie.  Yes ;  in  normal  times,  of  course ;  but  the  money  that 
you  de])0sit  of  itself  becomes  a  reserve,  and  it  supports  deposits.  The 
law  only  requires  15  per  cent.  I  believe  if  we  had  no  law  on  the  sub- 
ject all  banks  would  carry  a  great  deal  more  reserves  than  now. 

Mr.  Hamiltox.  There  is  a  certain  portion  of  deposits  deposited  in 
commercial  centers,  called  a  reserve,  that  in  reality  does  not  belong  to 
the  reserve  fund  at  all.  It  is  their  excess  deposits.  It  is  not  really 
put  there  for  the  reason  of  complying  with  the  law  relative  to  main- 
taining the  15  per  cent  reserve.  It  is  kept  there  for  the  purpose  of 
getting  what  interest  they  can  and  the  convenience  of  having  it ;  and 
in  the  majority  of  small  places  exchange  is  more  desirable  generally 
than  actual  notes  of  hand. 

Now,  the  next  section  is  section  6,  relative  to  the  guaranty  fund, 
which  provides  that  the  tax  received  from  these  credit  notes  shall  be 
deposited  in  such  a  fund.  Section  7  provides  that  before  these  credit 
notes  can  be  issued  the  bank  contemplating  their  issue  must  deposit 
with  the  Treasury  Department  a  sum  equal  to  5  per  cent  of  the  con- 
templated issue,  creating  the  guaranty  fund  at  once.  And  after  the 
receipts  equal  the  amount  of  this  5  per  cent,  then  the  original  de- 
posit may  be  refunded  to  the  bank  of  issue. 

Section  8  provides  for  the  redemption  cities. 

Mr.  McKiNNEY.  But  when  you  refund  the  original  deposit,  after 
you  have  reached  5  per  cent  through  this  tax  fund,  your  fund  will 
keep  on  increasing  and  accumulating? 

Mr.  TIamiltox.  We  have  made  no  provision  whatever  for  a  limit 
as  to  the  amount  of  this  fund. 

Mr.  McKtnney.  But  it  naturally  will  keep  on  increasing  and  ac- 
cumulating. 

Mr.  IlAMii/rox,  The  tax  continues  just  the  same  as  the  tax  now 
continues  on  national-bank  note  issues.  ,, 

Mr.  Gillespie.  Is  it  your  purpose  that  that  shall  be  a  fund  to  be  ■ 
covered  finally  into  the  General  Treasury  or  to  be  held  as  a  special 
fimd  to  go  eventually,  if  not  used,  back  to  the  banks?    AVhat  is  your 
idea  about  what  ought  to  be  done  with  that? 


CURRENCY  LEGISLATION.  103 

Mr.  Hamilton.  The  thought  of  the  committee  was  that  that  fund 
probably  would  belong  to  the  Federal  Government;  but  we  did  not 
attempt  to  provide  what  course  should  be  pursued  with  it,  for  the 
reason  that  none  of  us  were  familiar  with  the  needs  of  the  Govern- 
ment and  where  3'ou  might  wi«h  to  a[)ply  it.  only  having  in  mind  the 
creation  of  a  fund  sufficiently  large  to  meet  all  the  expenses  of  the 
management  of  this  department  and  giving  security  to  the  notes 
issued. 

Mr.  McKiNNEY.  Nothing  has  ever  been  done,  has  it,  toward  any 
distribution  of  the  fund  that  has  been  created  through  the  loss  of 
national-bank  notes  in  all  the  years  since  the  national-bank  act  ? 

Mr.  Gillespie.  None  that  I  am  aware  of. 

Mr.  McKiNNEY.  This  would  not  go  in  the  same  category.  You 
know  there  has  been  a  profit  always  to  the  Government  on  account  of 
the  loss  and  destruction,  and  so  on.  of  national-bank  notes. 

Mr.  Gillespie.  Yes. 

Mr.  McKiNNEY.  The  assumption  being  that  any  of  the  notes  that 
were  ever  issued  might  come  up  for  redemption  at  some  time. 

Mr.  Gillespie.  Yes. 

Mr.  Hamilton.  Section  8  of  this  measure  is  relative  to  the  redemp- 
tion cities.  We  think  that,  as  it  states  there,  they  should  be  not  more 
than  twenty-four  hours  distant  from  the  bank.  In  other  words,  it 
might  necessitate  the  creation  of  additional  redemption  cities  over 
■  the  42  cities  w^e  now  have  as  reserve  cities — reserve  city  points — and 
we  believe  that  the  more  convenient  these  redemption  cities  are  the 
quicker  the  notes  will  be  returned  and  retired ;  and  the  success  of  the 
plan  rests  largely  on  the  convenience  of  these  points.  The  great 
trouble  even  under  the  present  system  is  the  length  of  time,  etc.,  that 
it  takes  to  retire  the  notes.  That  is,  the  length  of  time  that  the  notes 
remain  outstanding,  depending  upon  getting  to  Washington  and  be- 
ing canceled,  and  the  limited  amount  that  may  be  retired.  Of  course 
under  this  measure  the  credit  notes  could  be  retired  immediately  when 
they  came  in,  and  it  is  expected  that  they  would  be  charged  to  the 
account  of  the  individual  bank  issuing  them  by  their  correspondents 
and  would  be  retired  at  once. 

The  Acting  Chairman.  I  would  like  to  ask  a  question  right  there. 
How  are  these  to  be  redeemed  ? 

Mr.  Hamilton.  How  are  they  to  be  redeemed? 

The  Acting  Chairman.  Yes. 

Mr.  Hamilton.  By  the  correspondent  of  the  institution  in  the  com- 
mercial center,  wherever  it  may  be. 

The  Acting  Chairman.  In  what  kind  of  money  or  currency? 

Mr.  Hamilton.  Oh,  in  lawful  money,  or  like  notes,  you  know. 
They  may  be  redeemed  in  either. 

The  Acting  Chairman.  Does  your  bill  so  state? 

Mr.  Hamilton.  It  says  in  lawful  money. 

Mr.  Gillespie.  That  does  not  mean  this  kind  of  note. 

The  Acting  Chairman.  That  would  not  be  lawful  money. 

Mr.  Gillespie.  Our  statute  defines  what  lawful  money  is — legal 
tender. 

Mr.  Hamilton.  This  bill,  I  think,  covers  that. 

Mr.  Gillespie.  This  says,  "  lawful  money,"  just  like  the  present 
bank  note. 


104  CURRENCY   LEGISLATION. 

The  Acting  Chairman.  What  section  is  that? 

Mr.  Gillespie.  Somewhere  here  it  says  that  it  shall  be  redeemed 
in  lawful  money. 

The  Acting  Chairman.  We  have  so  many  different  bills  that  I  am 
afraid  we  mix  them  up. 

Mr.  Hamilton.  Of  course  section  13  speaks  of  the 

Mr.  Cox.  It  is  in  section  6. 

Mr.  Hamilton.  Eead  it. 

Mr.  Cox.  "  That  the  taxes  upon  national  bank  guaranteed  credit 
notes,  provided  for  in  sections  2  and  3  of  this  act,  shall  be  paid  in 
lawful  money  to  the  Treasurer  of  the  United  States." 

The  Acting  Chairman.  But  that  is  as  to  the  payment  of  the  taxes. 
Now,  you  have  a  redemption  city  created  by  the  Comptroller  of  the 
Currency,  and  I  come  to  that  redemption  city  with  some  of  your 
notes,  issued  by  your  bank  in  Illinois,  and  I  ask  to  have  those  notes 
redeemed.  What  will  they  pay  me  in  exchange  for  those  notes;  and 
does  your  bill  state  what  it  shall  consist  of  ? 

Mr.  ]\IcKiNNEY.  Section  8  provides  for  the  redemption. 

The  Acting  Chairman.  But  it  leaves  it  entirely  with  the  Comp- 
troller. 

Mr.  Hamilton.  I  guess  it  is  left  with  the  Department,  because  I 
see  no  provision  as  to  that. 

Mr.  McCreary.  Absolutely;  because  it  says  that  he  shall  require 
such  bank  to  make  arrangements  satisfactory  to  him. 

The  Acting  Chairman.  Do  you  not  think  that  leaves  it  open? 
Suppose  he  insisted  that  you  redeem  it  in  gold  coin  ? 

Mr.  Hamilton.  Section  12 — I  do  not  know  whether  that  could  be 
construed  to  apply  or  not :  "  That  any  national  banking  association 
desiring  to  retire  its  national  bank  guaranteed  credit  notes  or  to  go 
into  liquidation  shall  pay  into  the  guaranty  fund  an  amount  of  lew- 
ful  money  equal  to  the  amount  of  its  national  bank  guaranteed  credit 
notes  then  outstanding." 

That  is,  when  it  is  going  out  of  business. 

The  Acting  Chairman.  But  if  it  does  not  want  to  retire?  You 
say  the  interest  of  any  other  bank  would  be  strong  enough  to  send 
your  notes  in  and  have  them  redeemed,  so  as  to  leave  a  place  for  its 
notes  to  be  put  in  circulation.  Now,  then,  I  am  that  other  bank.  I 
have  your  notes.  I  step  to  the  redemption  agency,  and  ask  to  have 
your  notes  redeemed,  to  get  rid  of  them,  so  that  my  notes  can  take 
their  place.  What  do  I  receive  in  return  or  exchange  for  your  notes 
or  your  bills? 

Mr.  Hamilton.  I  guess  that  is  not  as  fully  covered  as  it  might  be 
in  the  measure.    I  think  that  is  a  good  criticism. 

The  Acting  Chairman.  I  think  that  ought  to  be  covered  in  some 
way.  Now,  in  connection  with  that,  we  have  heard  a  good  deal  in 
this  committee — the  older  members — of  the  danger  of  throwing  too 
much  upon  the  gold  reserve,  or  upon  gold  as  a  basis  of  redemption 
or  exchange.  It  is  claimed  that  by  reason  of  our  keeping  our  money 
on  a  parity  the  silver  can  be  exchanged  for  gold;  that  the  Treasury 
notes  can  be  exchanged  for  gold ;  that  the  greenbacks  can  be  ex- 
changed for  gold ;  that  national-bank  notes,  as  now  issued  and  in 
circulation,  by  one  step  can  be  exchanged  for  gold.  If  there  has 
been  a  danger  up  to  this  time,  and  you  throw  an  extra  burden  of 
two  or  three  hundred  millions  upon  that  same  fund,  are  you  not 


CURRENCY  LEGISLATION.  105 

making  that  gold  basis  a  little  dangerous  for  the  purpose  of  keep- 
ing all  kinds  of  money  at  a  parity;  and,  as  a  matter  of  fact,  with 
your  kind  of  currency,  as  well  as  the  Aldrich  currency,  do  you  not, 
to  the  extent  that  you  issue  this  currency,  burden  our  present  gold  as 
an  agent  for  the  redemption  of  other  money  ? 

Mr.  Hamilton.  I  should  think  it  would. 

The  Acting  Chairman.  Is  there  not  a  danger  growing  out  of  the 
whole  scheme  and  plan  of  this  kind  of  currenc}^  ?  And  if  it  is  not  a 
danger,  tell  why  it  is  not. 

Mr.  McKiNNEY.  Mr.  Chairman,  it  seems  to  me  that  the  whole 
tenor  of  this  bill  is  against  that.  It  states  in  what  way  the  notes 
issued  can  be  redeemed.  In  a  former  bill  it  was  stated  that  they  must 
be  redeemed  by  the  deposit  of  gold. 

The  Acting  Chairman.  That  is  the  new  Fowler  bill,  so  called. 

Mr.  McKiNNEY.  Yes.  In  this  bill  it  can  be  redeemed  by  depositing 
lawful  money. 

The  Acting  Chairman.  No;  it  leaves  it  in  the  discretion  of  the 
Secretary  of  the  Treasury. 

Mr.  McKiNNEY.  It  does  afterwards,  back  here. 

The  Acting  Chairman.  That  is  when  you  retire  it;  but  I  refer  to 
the  current  redemption  of  the  notes. 

Mr.  McKiNNEY.  It  seems  to  me  there  should  be  a  different  state- 
ment here,  though;  that  it  should  be  in  lawful  money,  to  make  it 
harmonious  with  the  other  provisions  of  the  bill. 

Mr.  Hamilton.  I  think  it  would  be  better  to  amend  it  to  that 
extent. 

The  Acting  Chairman.  What  have  you  to  say  to  the  objection  I 
make  ?  We  will  have  to  meet  that  in  the  House,  no  matter  what  the 
proposition  is,  I  am  frank  to  say. 

Mr.  Hamilton.  I  think  it  would  throw  an  additional  burden  on 
the  gold  reserve  of  the  country.  However,  you  must  take  into  con- 
sideration the  fact  that  these  notes  will  generally  be  issued  when 
there  is  a  withdrawal  of  the  deposits  and  the  same  legal  resem^e 
would  apply,  one  for  the  other.  If  three-fifths  of  the  reserve  of  the 
country  banks  is  carried  with  the  reserve  city,  then  it  is  up  to  that 
reserve  agent  to  redeem  those  notes  in  whatever  kind  of  money  maybe 
demanded.  The  idea  that  prevails  that  this  note  issue  would  enable 
banks  to  loan  money,  I  think,  is  an  erroneous  one,  to  a  certain  extent. 
For  illustration,  if  a  man  came  into  a  bank  and  wanted  to  borrow 
$1,000  and  demanded  the  currency  for  it,  before  the  bank  could  make 
that  loan  it  is  necessary  for  it  to  have  equivalent  to  really  25  per 
cent  of  the  amount,  even  in  a  country  bank,  in  legal  reserve  money. 
In  other  words,  the  money  that  is  required  for  redemption,  for  the 
guaranty  fund  and  the  15  per  cent  reserve,  is  equivalent  to  25  per 
cent  of  the  capital,  and  it  would  necessitate  the  bank  to  have  $200  in 
legal  reserve  money  before  it  could  make  a  loan  of  $1,000  in  credit 
notes.  So  that  I  do  not  believe  this  measure  Avill  tend  to  encourage 
banks  to  loan  money  for  the  sake  of  getting  out  the  circulation.  I 
think  the  banks  will  issue  it  when  there  is  a  heavy  withdrawal,  and 
actual  bills  are  required,  and  they  can  use  the  same  reserve  against  the 
note  that  they  now  use  against  their  deposits,  and  protect  the  reserve 
of  the  country  in  that  manner.  Of  course  section  8  leaves  a  good 
deal  of  the  plan  of  completing  the  organization,  and  how  it  shall  be 
controlled,  to  the  Comptroller  of  the  Currency.     You  will  notice  it 


106  CURRENCY   LEGISLATION. 

says,  "  he  shall  require  such  bank  to  make  arrangements  satisfactory 
to  him  for  the  current  daily  redemption  of  such  notes  in  every  re- 
demption city  so  designated." 

The  Acting  Chairman.  Well,  in  a  govenment  of  parties,  where 
one  stays  awhile  and  then  another  comes  in,  and  where  the  currency 
question  is  involved  in  our  politics  so  closely,  would  it  not  be  better 
to  leave  it  under  the  control  of  Congress  to  state  just  what  should 
be  the  kind  of  money  to  redeem  it  in,  rather  than  to  leave  it  to  one 
man,  who  may  have  one  opinion  now  and  whose  successor  may  have 
another  opinion — which  we  find  is  often  the  case? 

Mr,  Hamilton.  Of  course  the  more  clearly  you  define  anything 
of  that  kind  the  better  the  bill  is. 

The  Acting  Chairman.  I  just  suggest  that. 

Mr.  McKiNNEY.  Suppose  you  add  at  the  close  of  section  8,  where 
it  goes  on  to  state  that  the  Comptroller  shall  require  such  bank  to 
make  arrangements  satisfactory  to  him  for  the  current  daily  redemp- 
tion of  such  notes  in  every  redemption  city  so  designated,  "  in  lawful 
money  of  the  United  States?" 

The  Acting  Chairman.  Well,  that  would  put  it  where  you  would 
laiow  what  it  was. 

]Mr.  McCreary.  How  would  that  affect  those  emergency  notes, 
Mr,  Hamilton?     They  could  be  paid  in  Idnd,  could  they  not? 

Mr,  Ha^iilton.  I  think  they  should  be  paid  in  kind, 

Mr.  McCreary.  Are  they  not  intended  to  be  what  we  consider 
lawful  money? 

Mr.  Hamilton.  Yes. 

Mr,  McKinney,  These  notes  are  lawful  money  when  you  want 
to  pay  off  some  other  bank. 

Mr,  Hamilton.  You  see  that  the  bank  note  in  section  9  of  the  bill 
is  given  the  same  powers  identically  as  the  present  national  bank 
note. 

Mr.  Gillespie.  The  bank  note  is  not  lawful  money. 

Mr.  McCreary,  There  is  where  you  get  the  confusion.  We  should 
put  in  there  "  or  notes  in  kind." 

Mr.  Hainiilton.  It  might  be  better  to  add  that. 

Mr.  McCreary.  And  then  you  have  it  ''  lawful  money  or  notes 
in  kind,"  and  if  they  have  an  exchange  in  their  favor  they  would 
send  back  the  notes  in  payment. 

Mr,  McKinney.  Lawful  monev  of  the  United  States  or  notes  in 
kind? 

Mr.  McCreary.  Lawful  money  or  notes  in  kind.  It  does  not  need 
the  words  "  of  the  United  States." 

Mr.  Gillespie.  Here  is  a  definition  of  what  lawful  money  is.  The 
term  "  lawful  money  "  is  understood  to  apply  to  every  form  of  money 
endowed  by  law  with  legal-tender  qualities.  This  is  not  lawful 
money.    It  could  not  be  rcMleemed  in  itself. 

Mr.  McCreary.  But  if  you  get  '"  notes  in  kind  "  in  there  would 
that  not  be  true? 

Mr.  HAMiLroN.  You  do  not  want  this  kind  of  a  condition:  That 
if  I  receive  notes  of  your  bank  you  could  pay  me  in  notes  of  some 
other  man's  bank, 

Mr,  McCreary,  No;  but  if  you  send  me  these  emergenc)'^  notes 
for  payment,  I  can  pay  you  in  our  notes  and  get  rid  of  them  in  that 
Way. 


CURRENCY  LEGISLA.TION.  107 

Mr.  Hamilton,  I  do  not  think  that  would  be  safe. 

Mr.  McKiNNEY.  In  case  you  are  goinjr  to  redeem  your  notes,  and 
liquidate  or  go  out  of  business,  this  requires  a  deposit  of  lawful 
money  of  the  United  States.  Why  would  not  another  provision 
that  these  be  redeemed  in  lawful  money  be  in  line  with  that  final 
provision  ? 

Mr.  Weems.  They  would  not  be  retired  at  all,  if  you  redeemed  them 
in  national-bank  notes. 

Mr.  McKiNNEY.  If  they  were  redeemed  in  lawful  money  it  would 
be  all  right. 

Mr.  Gillespie.  It  seems  to  me  it  would  strengthen  your  bill  to  put 
it  "  redeemable  in  gold." 

Mr.  Hamilton.  The  committee,  you  understand,  are  not  entirely 
hidebound  to  this  measure.  Any  amendment  that  will  strengthen 
it  we  would  be  glad  to  have. 

Mr.  Gillespie.  The  people  do  not  call  for  the  gold,  but  if  they 
know  it  is  there  it  strengthens  the  bill  in  the  popular  estimation. 

Mr.  McKinney.  But  what  is  the  practical  difference?  With  law- 
ful money,  if  you  define  it  as  being  only  Treasury  notes 

Mr.  Gillespie.  Then  the  Government  will  have  to  furnish  the  gold 
to  retire  the  lawful  money;  but  in  this  case  the  bank  will  have  to 
furnish  the  gold. 

Mr.  McKinney.  The  lawful  money  is  good  for  gold,  if  you  want 
to  get  it. 

Mr.  Gillespie.  But  the  Government  has  to  furnish  it.  This  would 
require  the  banks  themselves  to  furnish  the  gold  with  which  to  re- 
deem this  currency. 

The  Acting  Chairman.  Let  me  read  you  what  Mr.  Fowler  says 
in  his  new  bill  in  connection  with  this.  He  describes  the  note  in 
these  words:  "National-bank  guaranteed  credit  note.  Will  be  re- 
deemed upon  demand  over  its  own  counter  by  the  national  bank  in 
gold  coin  or  its  equivalent.  The  payment  of  this  note  is  guaranteed 
by  the  fund  deposited  with  the  Treasurer  of  the  United  States."  It 
is  the  only  one  of  the  bills  under  discussion,  as  I  now  recall,  which 
really  redeems  the  notes.  In  the  others  there  is  a  burden  back  upon 
the  Government  to  furnish  the  gold  to  redeem  the  not«s,  and  if  the 
Government  has  not  the  gold  it  then  has  to  exercise  its  power  under 
the  law  to  sell  bonds  to  get  the  gold  with  which  to  redeem  these  notes. 
The  question  is.  Is  that  a  wise  measure,  with  that  in  the  bill.  Would 
it  not  be  better  to  throw  the  burden  of  redeeming  this  currency  upon 
the  bank  itself,  because  it  issues  it  only  when  there  is  a  necessity  for 
it,  and  if  the  necessit}^  arises  for  the  issuing  of  it  the  bank  should  pro- 
vide itself  with  means  to  redeem  the  money  in  case  of  stress  or  emer- 
gency, rather  than  to  throw  the  extra  burden  upon  the  Government 
in  time  of  stress  or  emergency  to  furnish  extra  gold  with  which  to 
meet  these. 

Mr.  Hamilton.  The  bill  of  last  year,  you  know,  did  require  the 
redemption  of  the  notes  under  section  12  in  gold. 

The  Acting  Chairman.  I  was  just  looking  that  up. 

Mr.  Hamilton.  I  have  it  here :  "  That  any  national  banking  associ- 
ation desiring  to  retire  its  national  bank  guaranteed  credit  notes  or 
go  into  liquidation  shall  pay  into  the  j^uaranty  fund  an  amount  of 
gold  coin  equal  to  the  amount  of  its  national  bank  guaranteed  credit 
notes  then  outstanding." 


108  CURRENCY   LEGISLATION.  , 

Sections  10  and  11  apply  to  any  case  of  a  failed  bank.  In  the  Mc- 
Kinney  bill,  the  one  you  have  before  you,  we  make  these  notes  a  first 
lien  on  the  assets  of  the  banking  institution.  Last  year  the  bill  pro- 
vided "  that  the  holder  of  an^^  national  bank  guaranteed  credit  note 
shall  be  a  general  creditor  of  the  National  Banking  Association  issu- 
ing it."  That  is  section  10.  This  year  it  reads.  "'  That  the  holder  of 
any  national  bank  guaranteed  credit  note  shall  have  a  prior  lien  on 
the  assets  of  the  National  Banking  Association  issuing  it  and  on  the 
statutor}^  liability  of  shareholders.'' 

The  Acting  Chairman.  Why  did  you  make  that  change  ? 

Mr.  Hamilton.  We  made  the  change  on  account  of  the  criticism 
that  arose  in  the  minds  of  the  people  as  to  the  security  of  these  notes. 
I  am  frank  to  confess  that  the  criticism  was  about  equal  between  the 
national  bankers  themselves  and  those  not  in  the  national  banking 
S3'stem.  They  seemed  to  think  the  section  was  not  broad  enough.  I 
myself  was  one  of  those  opposed  to  making  such  notes  a  first  lien  upon 
the  assets  of  the  national  bank,  believing  that  it  would  discredit  the 
institution  issuing  it.  However,  there  seems  to  be  a  demand  on  the 
part  of  the  public  for  greater  security,  if  possible,  for  the  note  issued. 
I  believe  that  this  provision  is  better  for  the  banks  of  the  country,  and 
involves  the  same  principle,  practically,  as  it  would  to  designate  cer- 
tain securities,  and  deposit  those  securities  for  an  emergency  circula- 
tion. It  makes  no  difference  whether  you  put  up  an}-  class  of  bonds 
or  security  and  require  25  per  cent  in  excess  of  the  amount  of  such 
securities  deposited  when  it  comes  to  the  adjustment  of  the  affairs  of 
a  failed  national  bank.  If  a  bank  should  fail  and  be  put  into  the 
hands  of  a  receiver,  the  first  step  that  will  naturally  be  taken  is  to 
take  from  the  assets  of  the  institution  and  redeem  its  pledged  secur- 
ities. I  can  see  no  necessity  for  pledging  the  special  securities  for  that 
purpose,  and  I  believe  that  this  section  places  the  note  holder  in  just 
as  strong  a  position,  if  not  a  stronger  one,  than  to  have  certain  se- 
curities deposited  with  the  Treasury  Department.  Of  the  measures  I 
have  seen  I  do  not  recall  any  of  them  that  has  a  provision  that  such 
securities  shall  be  the  only  security  for  the  note  issued,  and,  like  the 
present  bond-secured  notes,  I  take  it  they  w^ould  be  a  first  lien  on  the 
assets  of  the  institution  if  the  Government  failed  to  realize  enough 
money  from  the  sale  of  those  securities  to  redeem  the  outstanding 
notes.  Consequently,  I  think  this  provision  is  fully  as  safe,  if  not 
safer,  than  anything  that  has  been  proposed. 

Mr.  McKinney.  That  is,  as  to  the  safety  of  this  issue,  you  are  com- 
paring it  with  the  notes  under  the  Aldrich  bill. 

Mr.  Hamilton.  T  do  not  make  any  particular  reference  to  any 
measure.  I  am  simply  speaking  of  the  segi'egrating  of  special  securi- 
ties as  security  for  bank  notes. 

Mr.  McKinney.  That  was  contemplated  under  the  Aldrich  bill, 
as  we  understand  it. 

Mr,  Hamilton.  Yes;  that  is  what  he  contemplated.  I  believe  that 
this  provision  places  it  within  the  power  of  the  banks,  without  any 
embarrassment  to  the  institutions,  to  issue  these  notes  without  being 
compelled  to  go  in  the  market  and  buy  certain  designated  securities, 
or  perhaps  lease  them  on  a  rental  basis.  Besides,  even  in  times  of 
emergency  you  are  not  depriving  their  customers  of  the  help  that 
rightfully  V)elongs  to  them  in  ordei-  to  go  into  the  market  and  buy 
securities  to  be  deposited. 


CURRENCY  LEGISLATION.  109 

There  has  recently  occurred  with  the  failure  of  the  Xational  Bank 
of  North  America  a  serious  question  as  to  what  the  rights  of  a  party 
are  who  has  loaned  bonds  to  be  used  to  secure  increased  circula- 
tion— Avhether  such  a  party  is  a  preferred  creditor  or  a  creditor  at 
all,  there  being  no  provision  in  our  national  banking  act  for  the  leas- 
ing of  bonds  for  this  purpose.  If  there  is  any  difficulty  in  getting 
pay  for  securities  advanced  or  loaned,  it  will  be  difficult  in  the  future 
to  get  such  bonds  at  any  price  in  times  of  a  panic,  and  in  ordinary 
times  these  securities  are  not  needed. 

Section  12  provides  as  to  the  manner  in  which  these  notes  may  bu 
retired.     It  says  that  it  shall  be  done  by  the  deposit  of  lawful  money. 

Section  13  is  the  provision  tliat  in  case  a  national  bank  has  issued 
its  full  limit  of  circulation  under  the  present  law  it  may  retire  it 
down  to  62^  per  cent  of  its  capital,  or  the  amount  contemplated  in 
tliis  act  as  the  minimum  amount  of  bond-secured  circulation,  without 
reference  to  the  present  law  of  $9,000,000  per  month. 

Now,  in  connection  with  this  measure,  I  wish  to  give  you  some 
figures  as  to  how  this  bill  would  have  worked  had  it  been  in  opera- 
tion during  the  past  crisis.  It  would  have  given  to  the  central  re- 
serve cities  of  New  York,  Chicago,  and  St.  Louis,  based  upon  the 
capital  shown  in  the  September  report  of  the  Comptroller  of  the 
Currencv,  $60,498,750  of  credit  note  issue.  It  would  have  given 
$40,332,500  of  the  low-taxed  notes  and  $20,166,250  of  the  5  per  cent 
notes.  It  would  have  given  to  the  other  reserve  cities,  not  central 
reserve  cities,  $52,729,425  of  low-taxed  notes  and  $26,364,712  of  5 
per  cent  notes.  It  would  have  given  to  the  6,178  country  banks,  or 
the  banks  required  to  carry  a  15  per  cent  reserve,  $131,050,903  low- 
taxed  notes  and  $65,525,451  of  5  per  cent  notes.  It  would  have 
given  to  all  the  national  banks  in  the  country  $224,112,828  of  the 
low-taxed  notes  and  $112,056,414  of  5  per  cent  notes.-  It  would 
have  given  to  the  country  banks  $196,576,355  of  both  kinds  of  credit 
notes  to  have  met  the  conditions  that  arose ;  or  it  would  have  given  to 
all  the  national  banks  $336,169,242. 

I  also  have  the  figures  here  show^ing  what  it  would  give  to  each 
State.  Of  course,  you  do  not  care  to  have  that  read,  and  to  each 
reserve  city. 

JNIr.  Hayes.  I  would  like  to  have  the  figures  myself. 

Mr.  Hamilton.  Do  you  mean  in  any  particular  State? 

Mr.  Hayes.  California. 

Mr.  Hamilton.  To  California  it  would  give  $11,173,843. 

Mr.  Hai-es.  And  NeAV  York  City  ? 

INIr.  Hamilton.  To  New  York  City  it  would  have  given  $42,967,- 
500.  It  would  have  given  Chicago'  $10,368,750.  In  the  clearing- 
house certificates  issued  there  is  a  good  illustration  of  the  credit- 
cnrrency  proposition.  Chicago  authorized,  I  think,  an  issue  of  four- 
teen millions.  They  put  out  something  over  eleven  millions.  This 
bill  would  have  provided  for  $10,368,000  that  they  might  have 
issued,  so  it  was  pretty  close  to  what  they  did  do. 

Mr.  INIcCreary.  What  would  Philadelphia  have  given  in  Penn- 
sylvania I 

Mr.  Hamilton.  To  Philadelphia? 

Mr.  McCreary.  Yes. 

Mr.  Hamilton.  Eight  million  three  hundred  and  fifty-nine  thou- 
sand three  hundred  and  seventy-five  dollars.  To  Pittsburg  it  would 
have  given  $10,912,500. 


110  CURRENCY   LEGISLATION. 

Mr.  McKiNNEY.  Thej'  issued  largely  more  than  that  of  clearing- 
house certificates? 

Mr.  Hamilton.  They  may  have. 

Mr.  McCeeary.  What  would  the  bill  have  given  them? 

Mr,  Hamilton.  This  is  what  the  bill  would  have  given  them: 
rhiladelphia,  $8,359.375 ;  Pittsburg,  $10,912,500. 

Mr.  McCreary.  Oh,  I  thought  that  was  the  clearing-house  cer- 
tificates that  you  referred  to. 

Mr.  INIcHen'ry.  Do  you  know  hoAv  much  the  clearing-house  cer- 
tificates of  Pittsburg  and  Philadelphia  amounted  to? 

Mr.  HA^kriLTOX.  Ihave  not  those  figures.  The  State  of  Pennsyl- 
vania could  have  issued  $42,1G2,T49  in  credit  notes.  I  have  the 
figures  here  for  all  the  States,  giving  the  number  of  banks,  and  the 
amount  that  should  be  issued,  and  also  the  reserve  cities. 

Mr.  Hayes.  Have  you  copies  of  that  ? 

Mr.  Hamilton.  I  can  furnish  copies  of  all  these  figures. 

Mr.  Cttllespie.  That  can  be  printed  with  your  remarks? 

Mr.  Hamilton.  Yes. 

Mr.  Hayes.  Yes;  we  want  those. 

(The  statement  above  referred  to  will  be  found  at  the  end  of  Mr, 
Hamilton's  remarks,) 

Mr,  Hamilton,  Now,  applying  these  figures  to  banks  of  different 
characters,  the  criticism  has  been  frequently  raised  as  to  the  ad- 
visability of  permitting  the  small  institutions  to  issue  these  notes,  in 
comparison  with  the  city  institutions — the  safety  of  it,  etc.  Another 
criticism  has  been  made  that  people  might  go  into  this  system  because 
of  the  note-issuing  privileges.  These  criticisms  really  amount  to 
nothing.  The  figures  will  not  bear  them  out.  For  instance,  take  a 
bank  with  a  capital  of  $25,000,  which  is  the  minimum  amount.  They 
could  issue  $9,375  credit  notes.  That  is  the  total  amount  that  an 
institution  of  that  kind  can  issue  under  this  measure,  A  bank  with 
a  capital  of  $50,000  can  issue  a  total  of  $18,750.  A  bank  with  a  cap- 
ital of  $100,000  can  issue  $37,500,  Now,  I  make  the  claim  for  this 
bill  that  there  is  abundant  security  back  of  it  to  satisfy  anyone  if  it 
is  carefully  considered.  Under  our  present  bank  law  a  national  bank 
with  a  capital  of  $100,000  can  take  out  $100,000  in  note  issue,  and  all 
that  is  required  of  it  is  to  deposit  a  5  per  cent  redemption  fund  with 
the  Treasury  Department,  or  $100,000  in  United  States  bonds  and 
$5,000  in  cash, 

Mr.  Gillespie.  And  that  is  a  part  of  its  reserve, 

Mr,  Hamilton.  And  that  is  a  part  of  its  reserve.  Under  the  plan 
we  have  proposed,  before  credit  notes  can  be  issued,  a  bank  must 
have  a  fully  paid-up  capital,  must  have  been  in  business  a  year,  and 
must  have  a  surplus  equal  to  20  per  cent  of  its  capital.  In  other 
words,  we  are  virtually  increasing  the  caJDital  of  the  institution  20 
per  cent  before  it  can  have  this  note-issuing  privilege. 

Mr.  McKinney,  In  selecting  that  20  per  cent,  is  that  based  on  the 
provision  that  now  prevails  that  no  national  bank  can  pay  dividends 
on  its  stock  until  it  has  accumulated  a  reserve  of  20  per  cent? 

Mr.  Hamilton.  Well,  we  provided  that  without  reference  to  the 
present  law, 

Mr,  McCreary,  That  is  the  requirement,  you  know. 


CURRENCY  LEGISLATION.  Ill 

Mr.  Hamilton.  We  made  that  provision  without  reference  to  that. 
That  was  done  to  prevent  anyone  from  going  into  the  business  for 
the  purpose  of  note  issuing. 

Mr.  Gillespie.  Would  that  20  per  cent  provision  cut  out  many 
banks  in  the  South  and  West? 

Mr.  Hamilton.  T  think  not.  T  think  it  would  cut  out  very  few. 
I  have  no  means  of  knowing  how  that  would  be,  without  a  good  deal 
of  work.    They  must  have  been  in  business  a  year  under  this  measure. 

The  Acting  Chairman.  I  would  like  to  ask  one  question.  Do 
you  know  how  much  gold  was  imported  into  this  country?  I  am 
trying  to  find  it  here,  but  it  is  all  mixed  up. 

Mr.  Hayes.  One  hundred  and  ten  million  dollars.  You  mean  dur- 
ing the  panic? 

The  Acting  Chairman.  Yes. 

Mr.  Hayes.  One  hundred  and  ten  million. 

The  Acting  Chairman.  Now,  do  you  know  how  much  the  bank- 
note circulation  based  upon  bonds  was  increased  during  that  time? 

Mr.  Hamilton.  I  have  no  means  of  knowing  exactly,  but  the  bank' 
note  issue  of  September  was  $551,949,461. 

Mr.  Craavford.  The  export  of  gold  was  considerable. 

Mr.  Hamilton.  And  the  note  issue  as  shown  by  the  report  of 
December  23  was  $601,805,985. 

Mr.  Hayes.  About  six  hundred  million  before 

Mr.  Hamilton.  It  Avas  $551,949,000  in  September  and  $601,805,985 
in  December. 

Mr.  McKiNNEY.  An  increase  of  $50,000,000. 

Mr.  Hayes.  No  ;  over  $100,000,000. 

Mr.  McKiNNEY.  No ;  fifty  million. 

Mr.  Hamilton.  The  report  for  September  gives  it  as  $551,949,461. 
You  can  take  that  last  report  and  figure  it  very  readily. 

Mr.  Hayes.  "\Yhat  was  the  figure  given  in  the  report  of  Decem- 
ber 23  ? 

Mr.  Hamilton.  Six  hundred  and  one  million  eight  hundred  and 
five  thousand  nine  hundred  and  eighty-five  dollars. 

Mr.  Hayes.  Oh,  yes;  it  is  $50,000,000. 

Mr.  Hamilton.  It  was  about  $50,000,000  at  that  time.  I  presume 
it  is  greater  now. 

The  Acting  Chairman.  What  I  was  getting  at  was  to  see  how 
much  the  volume  had  been  added  to  by  gold  importation  and  by  the 
increase  of  circulation  based  upon  bonds. 

Mr.  Hayes.  There  was  somp  gold  exportation,  though,  I  suppose. 

Mr.  McKiNNEY.  Yes;  I  suppose  so. 

Mr.  Hamilton.  These  are  the  only  figures  I  have  on  the  subject. 

The  Acting  Chairman.  Mr.  Hill  has  just  suggested  to  me  that, 
based  upon  the  bond-secured  circulation  and  gold  imports  during 
the  financial  trouble,  the  amount  will  be  a  trifle  short  of  $200,000,000. 

Mr.  Hill.  And  the  national-bank  circulation  outstanding  on  the 
1st  day  of  January  was  $690,000,000. 

Mr.  Hamilton.  That  makes  it  $140,000,000. 

The  Acting  Chairman.  And  talring  it  on  the  1st  of  February 
you  will  find  it  more  than  that,  I  think. 

Mr.  Hill.  I  think  not. 


112  CURRENCY   LEGISLATION. 

Mr.  Hamilton.  That  is  an  increase  of  approximately  $140,000,000 
in  the  national-bank  circulation. 

The  Acting  Chairman.  Do  you  mean  on  top  of  your  one  hundred 
and  ten  millions  of  gold  ? 

Mr.  Hamilton.  Yes, 

The  Acting  Chairman.  No;  if  there  were  $110,000,000  of  gold- — 

Mr.  Hamilton.  That  last  statement  the  gentleman  [Mr.  Hill] 
presented  there  shows  it  to  be  about  $140,0(}0,000  more.  He  said 
$690,000,000. 

The  Acting  Chairman.  That  is  based  upon  the  bank  circulation. 
That  is  the  bank  circulation.  That  is  not  the  gold  importation 
at  all. 

Mr.  Hill.  It  had  nothing  to  do  with  it  at  all. 

Mr.  Hamilton.  But  that  is  an  increase  of  $140,000,000. 

Mr.  Hayes.  That  is  $140,000,000.     That  is  extraordinary. 

The  Acting  Chairman.  Of  course  you  mean,  if  there  had  been 
$336,000,000  issued  in  that  time? 

Mr.  Hamilton.  Yes;  it  would  have  prevented  this  condition. 

The  Acting  Chairman.  And  not  wait  until  a  later  time. 

Mr.  Hamilton.  Yes.  The  security  back  of  the  notes  issued,  if  our 
plan  was  a  law,  would  be  as  follows:  Taking  a  bank  with  a  capital 
of  $100,000  as  the  basis  to  figure  upon,  they  would  have  $62,500  in 
bond-secured  notes,  or  in  Government  bonds.  They  would  have  a 
5  per  cent  redemption  fund  with  the  Treasury  Department,  amount- 
ing to  $3,125 ;  a  5  per  cent  redemption  fund  for  credit  note,  $1,875, 
and  a  5  per  cent  guarantee  fund  for  credit  note,  $1,875;  the  legal 
reserve  fund  required  to  be  carried  would  be  $5,625;  you  also  have 
37^  per  cent  of  capital  of  the  institution  that  is  not  invested  in  Gov- 
ernment bonds,  but  is  a  general  asset  of  the  banking  institution, 
which  strengthens  the  asset  of  your  bank  to  that  extent;  you  have 
also  the  20  per  cent  of  surplus  required,  which  would  increase  the 
assets  $20,000.  I  take  it  that  we  have  every  right  to  consider  this 
portion  of  the  capital  and  this  surplus  as  that  much  additional  secur- 
ity in  comparing  the  present  banking  law  with  the  one  we  contem- 
plate. In  other  words,  that  would  give  us  $132,500  in  securities  to 
meet  $100,000  in  note  obligations. 

Now,  as  to  the  security  back  of  the  smaller  or  the  country  banking 
institutions,  I  have  made  special  inquiry  as  to  the  country  banks,  and 
I  find  that  the  average  responsibility  of  the  combined  stockholders 
of  banks  with  capital  of  $25,000  is  upward  of  $350,000,  and  that 
they  own,  generally  speaking,  in  real  estate  on  an  average  of  3,300 
acres  to  each  institution. 

Mr.  Weeks.  How  did  you  get  at  that  information? 

Mr.  Haimilton.  I  sent  a  special  letter  to  the  banks  individually, 
and  had  them  fill  it  out. 

Mr.  Weeks.  In  Illinois,  do  you  mean? 

Mr.  Hamilton.  I  sent  it  all  over  the  United  States. 

Mr.  Cox.  These  tables  Mr.  Hamilton  prepared,  himself,  certainly 
three  months  ago. 

Mr.  Pujo.  How  did  the}'^  get  that  real  estate  ? 

Mr.  Hamilton.  I  simply  sent  a  circular  letter  to  these  banks  ask- 
ing them  to  furnish  me  with  that  information  in  a  general  way. 

Mr.  Pu.To.  The  average  bank  you  say  owned  how  much  ? 


CURRENCY   LEGISLATION.  113 

Mr.  PIa:milto?s.  Three  tlioiisiuul  tlnee  huii(lred  acres.  AN'ith  a  cap- 
ital of  $25,000. 

Mr.  Pujo.  Each  of  the  country  banks? 

Mr.  Hamiltois'.  Each  of  the  country  banks  with  $25,000  capital. 
That  is,  on  an  averaae. 

]Mr.  Pujo.  They  show,  then,  evidentl}^  bad  loans,  because  they  are 
only  permitted  to  acquire  real  estate  in  collection  of  a  bad  loan. 

Mr.  Hamilton.  Do  not  luisunderstaid  me.  This  is  simply  the 
real  estate  owned  by  the  individual  stockholders,  in  order  to  get  at 
the  responsibility  of  the  institution  and  the  security  to  the  note 
holder,  or  to  the  additional  liability  equal  to  the  amount  of  the 
capital. 

Mr.  Pujo.  Did  they  furnish  a^ou  with  the  legal  exemptions  of  each 
stockholder  in  those  banks,  under  the  homestead  laws  of  his  State, 
as  to  whether  or  not  this  real  estate  was  part  of  his  homestead? 

Mr.  Hamilton.  Oh,  no.  It  was  simply  general  information  that 
they  furnished  me  in  this  connection. 

Mr.  Weeks.  Did  you  ask  whether  that  real  estate  was  encumbered 
or  not? 

]\Ir.  Hamilton.  I  asked  them  what  the  individual  responsibilty 
of  their  stockholders  was  above  liabilities,  and  that  is  how  we  get 
the  figure  of  upward  of  $350,000  to  the  institution. 

Mr.  Pujo.  Your  bill  contemplates  a  guaranteeing  of  deposits? 

Mr.  Hamilton.  No;  it  does  not. 

Mr.  Pujo.  Do  you  belieA^e  in  guaranteed  deposits? 

Mr.  Hamilton.  I  do  not. 

Mr.  Hayes.  Will  you  tell  as  why.  briefly. 

Mr.  Haisiilton.  ]\Iy  objection  to  the  guaranteeing  of  deposits  is 
that  I  believe  the  banking  system  of  this  country  should  encourage 
the  building  up  of  the  capital  and  surplus  of  your  institutions.  The 
guaranteeing  of  deposits  would  incline  the  management  of  the  in- 
stitutions to  keep  their  capital  at  the  minimum  required  in  the  dif- 
ferent cities. 

Mr.  Hayes.  And  pay  out  all  their  surplus  in  dividends? 

Mr.  Hamilton.  And  pay  out  their  surplus  in  dividends. 

Mr.  Pujo.  That  would  be  an  advantage  to  the  people,  to  get  their 
money  back  to  spend. 

Mr.  Hamilton.  Well,  they  get  it  in  the  way  of  loans. 

Mr.  Gillespie.  Yesterday  I  heard  a  gentleman  of  a  great  deal  of 
prominence  make  another  answer  to  that  argument.  He  said  that  he 
did  not  think  that  the  cajDitalization  of  banks  should  be  reduced,  be- 
cause the  bio;  banks  had  heavj-  customers,  and  under  the  10  per  cent 
limitation  or  loans  to  one  customer  they  would  have  to  have  a  heav}^ 
capitalization. 

^Ir.  Hamilton.  That  throws  an  additional  burden  on  those  larger 
institutions  in  the  way  of  responsibility  for  the  weaker  or  irresponsi- 
ble banks,  and  it  encourages  every  man  in  that  particular  class  of 
banking  to  go  out  and  advertise  for  accounts,  etc.:  and  even  though 
the  public  may  know  the  institution  is  shady,  and  the  management  of 
the  institution  is  shady,  yet  he  can  say:  "  Here,  our  institution  is  just 
as  good  as  the  biggest  institution  in  a  commercial  center,  because  the 
Government  is  back  of  all  our  deposits.'" 

Mr.  Pujo.  I  would  like  to  go  just  a  step  further  for  my  own  in- 
formation, and  possibly  for  that  of  some  members  of  the  committee, 
:^73S1— os^— s* 


114  CUERENCY   LEGISLATION. 

on  this  question  of  the  Government  guaranty.  It  is  being  advocated 
by  both  Republicans  and  Democrats  now,  and  if  any  such  matter 
might  ever  come  to  be  a  partisan  matter 

Mr.  Weeks.  You  mean  by  some  Republicans  and  some  Democrats. 

Mr.  Pujo.  Well,  some  of  both,  but  not  all.  If  the  Government 
were  to  guarantee  the  deposits  by  any  scheme  that  might  be  devised 
and  enacted  into  law,  would  it  not  have  a  tendency  to  have  all  de- 
positors of  savings  banks,  trust  companies,  and  State  banks  transfer 
their  deposits  to  the  national  banks,  unless  similar  protection  were 
afforded  to  the  various  State  institutions  that  I  have  mentioned? 

Mr.  Hamilton.  I  do  not  look  upon  that  with  the  alarm  that  most 
people  do  in  that  connection.  Xow,  I  am  not  a  national  banker  my- 
self. I  am  a  State  banker  and  a  private  banker,  and  I  think  that, 
while  there  will  be  joerhaps  some  withdrawals,  the  well-established 
State  institutions  and  well-established  banks  of  any  kind  will  hold 
the  bulk  of  their  business;  and  it  would  lead  to  this,  in  my  mind: 
That  the  State  institutions,  perhaps,  might  have  to  offer  a  little  extra 
inducement,  or  something  of  that  kind,  equivalent  to  what  would  be 
required  of  the  national  institutions  to  establish  this  guaranty  fund; 
and  they  would  do  it,  saying  to  their  customers,  "  You  have  known 
us  for  years,  etc.,  and  we  prefer  to  give  you  the  benefit  of  this  rather 
than  the  Federal  Government." 

Mr,  PuJO.  Assuming,  now.  that  such  a  plan  should  be  enacted  into 
law,  and  that  the  State  legislatures  would  enact  legislation  similar 
to  that  enacted  by  the  National  Government  affording  every  protec- 
tion as  to  guaranty,  inspection,  and  other  methods  of  supervision 
of  the  affairs  of  the  bank,  do  you  not  believe  that  the  average  man 
would  prefer  to  have  the  guaranty  of  the  United  States  Government 
behind  his  deposit  rather  than  that  of  a  State? 

Mr.  Hamilton.  Well,  that  would  simply  be  a  guess  on  the  part 
of  the  party  answering. 

Mr.  Pujo.  Is  it  not  socialism  to  have  the  Government  protect  any- 
body's deposit,  either  State  or  national,  in  banks? 

Mr.  Hamilton.  I  do  not  think  it  is  good  policy. 

Mr.  Pujo.  Is  it  not  socialism  or  centralization? 

Mr.  IMcCleary.  Paternalism. 

Mr.  Pujo.  Yes;  socialism  or  paternalism. 

Mr.  McKiNNEY.  If  you  give  that  protection  to  the  depositor,  why 
can  you  not  equally  well  permit  the  banks  to  go  to  the  Government 
to  guarantee  the  loans  they  make? 

Mr.  Hayes.  Oh  the  merchant  to  guarantee  his  accounts,  his  bills? 

Mr.  McKiNNEY.  Yes. 

Mr.  Weeks.  I  would  like  to  ask  one  question  in  connection  with 
that.  Do  you  think  that  the  record  of  bank  failures  up  to  this  time 
would  be  any  guide  to  further  bank  failures  in  the  future,  if  such 
a  policy  Avere  adopted  ? 

Mr.  Hamilton.  Do  you  mean  as  to  the  guaranteeing  of  deposits? 

Mr.  Weeks.  Yes. 

Mr.  Hamilton.  I  do  not  think  you  could  base  it  upon  that  at 
all,  because  I  have  an  idea  that  this  would  lead  a  great  many  into 
offering  inducements,  and  the  competition  would  lead  them  into 
unsafe  banking. 

Mr.  Weeks.  You  thinlc  it  would  increase  the  number  of  bank 
failures,  do  you? 


CURRENCY  LEGISLATION.  115 

Mr.  Hamilton.  I  think  it  would  have  a  tendency  to  do  that. 
That  would  be  my  opinion. 

Mr.  McKiNNEY.  Under  a  system  where  all  bank  deposits  were 
guaranteed  by  the  Government  or  guaranteed  by  the  united  banks, 
would  it  not  lead  to  some  method  of  competition  between  the  indi- 
vidual banks  through  which  the  bank  that  offered  the  greatest  in- 
ducement would  naturally  get  the  greater  amount  of  business? 

Mr.  Hamilton.  I  think  it  would,  and  I  think  that  is  wherein  the 
danger  lies — that  one  set  of  bankers  would  adopt  a  policy  that  con- 
servative institutions  would  not  adopt. 

Mr.  JMcKiNNEY.  And  that  would  be  the  bank  that  would  secure 
the  business,  because  all  the  banJcs  would  be  behind  it. 

Mr.  Hamilton.  All  the  banks  would  be  behind  it,  and  they  would 
use  that  leverage  to  get  business. 

Mr.  Hayes.  And  they  would  get  it,  too. 

Mr.  McHenry.  Are  you  in  favor  of  postal  savings  banks  ? 

Mr.  Hamilton.  I  am  not  in  favor  of  postal  savings  banks,  so  far 
as  any  bill  that  has  been  brought  to  my  attention  is  concerned. 

Mr.  Gillespie.  With  the  Government  paying  2  per  cent  on  deposits? 

Mr.  Hamilton.  It  is  not  the  question  of  paying  2  per  cent  on  de- 
posits that  I  object  to,  but  it  is  the  principle  involved  in  these 
measures,  where  it  is  provided  that  all  such  deposits  made  with 
postal  savings  banks  are  not  subject  to  any  legal  process  and  are  not 
subject  to  taxation.  That  is  a  very  dangerous  feature  for  the  coun- 
try, and  it  would,  in  the  smaller  institutions  where  there  is  a  tendency 
in  localities  to  escape  taxation,  take  a  large  per  cent  of  business  away 
from  those  institutions.  That  is  the  principal  objection  to  the  meas- 
ures that  has  come  to  my  notice.  Of  course  the  investment  of  the 
funds  in  the  bonds  of  municipalities  of  20,000  and  upward,  and 
things  of  that  kind,  are  objectionable  to  the  smaller  jolaces;  but  the 
great  danger  that  I  see  in  the  postal  savings  bank  measure  is  along 
the  lines  I  have  stated — that  is,  so  far  as  the  bills  that  have  come  to 
my  notice  are  concerned. 

Mr.  Hayes.  You  are  familiar  with  the  general  character  of  what 
is  called  the  Aldrich  bill,  I  suppose.  What  do  you  think  about  the 
bond-secured  circulation  provided  for  by  that  i 

Mr.  Hamilton.  The  difficulty  in  answering  your  question  in  that 
connection  is  that  I  do  not  know  which  edition  3''0U  refer  to.  You  see 
they  are  getting  out  a  new  amendment  almost  every  day.  The  origi- 
nal bill  I  Was  very  much  opposed  to,  and  I  guess  you  all  received  a 
circular  letter  from  me,  if  you  take  occasion  to  look  it  up.  My  ob- 
jection was  that  there  are  comparatively  few  cities,  in  proportion  to 
the  number  in  the  United  States,  that  have  bonds  that  are  acceptable 
for  that  purpose;  and  I  believe  that  232,  or  something  of  that  kind — 
I  know  it  was  12  in  the  State  of  Illinois 

The  Acting  Chairman.  Senator  Aldrich  has  reported,  on  January 
30,  1908,  the  bill  with  an  amendment.     Perhaps  you  have  not  seen  it. 

Mr.  Hamilton.  I  have  not  seen  that  bill.  I  do  not  want  to  criti- 
cise that  bill,  for  I  do  not  know  anj^thing  about  it. 

Mr.  Hayes.  Let  me  ask  you  this  question,  in  a  little  different  way, 
because  I  would  like  to  get  your  opinion  on  it.  Suppose  all  those  re- 
requirements  were  wiped  away,  what  then  would  3'ou  sa}^  in  regard  to 
it?     I  mean  to  say,  suppose  all  municipalities,  without  reference  to 


116  CURRENCY   LEGISLATION. 

their  size,  school  districts,  and  eveiything.  could  be  accepted  for  cir- 
culation, provided  they  had  not  defaulted  in  the  interest. 

Mr.  Hamilton.  I  think  there  should  be  some  additional  require- 
ment in  excess  of  that.  For  instance,  there  should  be  a  limit  to  the 
bonded  indebtedness  in  proportion  to  the  valuation  of  the  communi- 
ties, etc.     There  should  be  something  of  that  kind. 

Mr.  Hayes.  Even  with  that,  what  would  you  say  about  that  sort 
of  currency? 

Mr.  Hamilton.  You  mean  as  to  whether  it  would  be  effective 
or  not  ? 

Mr.  Hayes.  Yes. 

Mr.  Hamilton.  I  do  not  believe -that  the  Aldrich  bill,  or  a  bill 
along  the  line  that  it  contemplates,  would  be  the  means  of  preventing 
panics.  I  believe  it  would  give  us  a  good,  safe,  secure  currency  that 
could  circulate,  but  I  think  that  under  any  provision  I  have  seen  of 
it  3'et  it  would  be  too  lengthy  and  cumbersome  to  do  much  good 
before  the  patient  would  be  in  a  helpless  condition. 

Mr.  Hayes.  In  other  words,  you  think  the  house  would  be  burned 
before  you  could  get  the  fire  engine  out  ? 

Mr.  Hamilton.  Yes. 

Mr.  Glass.  Eight  on  that  point,  do  you  think  the  Aldrich  bill, 
even  in  a  time  of  emergency,  would  afford  any  great  amount  of  relief 
to  the  banks  of  the  South  and  the  AVest  ?  In  other  words,  are  not 
most  of  the  banks  in  the  South  and  West,  the  interior  banks,  up  to 
their  limit  on  circulation  now  ?  Are  not  all  the  small  banks  up  to 
their  limit  on  circulation  ? 

Mr.  Hamilton.  I  think  not  all  of  tliem :  but  of  course  the  reports 
of  the  Comptroller  show  that  up  to  the  beginning  of  this  trouble  they 
had  about  GO  per  cent. 

jNIr.  Glass.  All  the  banks? 

Mr.  Hamilton.  Yes;  outstanding. 

Mr.  Glass.  But  I  mean  the  banks  of  the  South  and  the  West. 

Mr.  Hamilton.  As  to  the  smaller  institutions,  I  could  not  tell  you 
what  the  figure  is.  because  I  do  not  knoAv.  But  we  have  provided  in 
this  measure  we  are  presenting  here  that  they  can  reduce  the  circula- 
tion down  to  6^  per  cent  of  their  caj^ital  and  avail  themselves  of  this 
emergency  issue  if  they  wish  to  do  so. 

Mr.  Weems.  Here  is  something  that  I  would  like  to  know  about  the 
Aldrich  bill.  Suppose  you  could  operate  under  it  in  five  minutes, 
and  you  had  a  currency  famine  in  a  bank,  and  you  could  not  borrow 
securities  and  had  to  buy  them.  How  would  it  relieve  the  currency 
famine,  as  far  as  tliat  bank  is  concerned? 

Mr.  Hamilton.  Well,  that  bank,  of  course,  would  be  as  helpless 
under  those  conditions  as  banks  are  under  tlie  present  condition  when 
they  liave  to  secure  Government  bonds  to  relieve  themselves. 

Mr.  Hayes.  It  would  take  good  money  to  do  it. 

Mr.  IIa:\iilton.  Yes;  I  do  not  believe  3'^ou  can  expect  institutions 
to  carry  the  class  of  securities  to  be  put  up. 

Mr.  ITayes.  You  could  not  expect  them  in  the  West  to  do  it. 

Mr.  Weeks.  Do  you  think  they  ought  to  do  it  anyway?  Do  you 
think  that  is  part  of  the  business  of  a  national  bank  to  buy,  own,  and 
carry  securities? 

Mr.  Hamilton.  I  think  they  should  be  limited  in  what  they  do  in 
that  resnect. 


CURRENCY  LEGISLATION.  117 

The  Acting  Chairman.  In  order  to  avail  themselves,  under  the 
]:)rovisions  of  the  Aldrich  bill,  to  the  full  extent,  would  they  not  have 
to  purchase  bonds  of  the  kind  mentioned  in  his  bill,  to  the  extent  of 
$500,000,000,  before  a  panic  had  come  upon  the  people? 

Mr.  Hamilton.  To  the  extent  of  $500,000.000 ;  yes. 

The  Acting  Chairman.  Then  to  that  extent  $500,000,000  of  the 
money  of  the  banks  is  tied  up,  is  it  not? 

Mr.  Hamilton.  Yes. 

The  Acting  Chairman.  Then  when  the  trouble  came,  if  they 
wanted  to  issue  currency  upon  that  $500,000,000,  they  could  only  issue 
currency  on  part  of  it,  to  the  extent  of  75  cents  on  the  hundred ;  and 
one-fourth  of  that  money  Avould  be  tied  up,  when  it  ought  to  be  let 
loose? 

Mr.  Hamilton.  Yes. 

The  Acting  Chairman.  And  the  balance  of  the  money  that  was 
not  tied  up  in  that  kind  of  security  could  only  be  issued  to  the  extent 
of  90  per  cent ;  so  that  in  a  time  of  stress  they  are  worse  off  than  they 
are  in  a  time  of  prosperity. 

Mr.  Hamilton.  Yes.  The  outline  of  the  Aldrich  bill,  that  I  saw 
this  morning,  provided  that  they  could  issue  90  per  cent  instead  of  75. 

The  Acting  Cpiairman.  Seventy-five  per  cent  on  railway  bonds. 

Mr.  Hamilton.  The  great  trouble  with  the  Aldrich  measure,  as  I 
see  it,  is  that  for  about  G.OOO  banks  in  the  United  States  it  would  be 
practically  useless. 

Mr.  Hayes.  Or  it  would  compel  those  banks  to  go  to  Wall  street 
and  buy  those  securities. 

Mr.  Hamilton.  It  would  compel  them  to  buy  and  carry  those 
securities.  They  w411  not  do  that  to  protect  themselves  now  in  an 
emergency.  They  will  not  carry  Government  bonds.  If  they  had 
been  available,  and  they  had  had  the  $300,000,000  necessaiy  to  issue 
the  additional  circulation  that  they  had  margin  to  do,  j'ou  would  not 
have  needed  any  emergency  circulation. 

Mr.  McKiNNEY.  In  order  for  a  bank  to  be  sure  to  be  able  to  avail 
itself  of  the  provisions  of  the  Aldrich  bill,  would  not  that  bank  have 
to  begin  and,  as  it  might  be  able  to  do  so,  acquire  this  class  of  securi- 
ties— all  these  little  local  bonds —  and  carry  them  as  assets  in  order  to 
have  them  when  suddenly  the  emergency  would  come  up? 

Mr.  Hayes.  Mr.  Hamilton  says  they  would  not. 

Mr.  McKiNNEY.  Would  it  be  wise  for  any  commercial  bank  to  load 
itself  down  with  that  sort  of  slow  assets? 

Mr.  Hamilton.  I  think  not,  for  a  country  bank. 

Mr.  Glass.  Do  you  know  of  a  trunk  line  of  railway  in  the  South 
whose  bonds  would  be  made  available  for  use  under  the  Aldrich  bill, 
which  requires  that  each  railroad  shall  have  paid  interest  for  a 
period  of  ten  years  on  all  of  its  capital  stock? 

Mr.  Hamilton.  I  do  not  know  of  any  railroad  security  in  any  sec- 
tion that  could  meet  that  requirement,  but  I  presume  there  are  such 
railroads.  I  have  no  means  of  loiowing.  That  is  information  that 
I  have  not  been  able  to  get. 

Mr.  Pujo.  That  is  to  be  corrected  by  amendment.  Senator  Dan- 
iel submitted  an  amendment  on  that,  so  as  to  protect  the  railroads 
in  the  South. 

Mr.  Hayes.  If  the  Aldrich  bill  should  become  a  law  and  a  certain 
class  of  securities  should  be  taken  to  the  extent  of  $500,000,000  for 


118  CURRENCY   LEGISLATION. 

circulation,  in  3'oiir  opinion  would  not  that  have  the  effect  of  giving  a 
fictitious  value  in  the  market  to  those  securities  ? 

Mr.  Hamilton.  It  would  naturally  strengthen  the  market  for 
them. 

Mr.  Hayes.  Would  it  not  raise  them  in  value? 

Mr.  Ha:milton.  Well,  I  am  rather  of  the  opinion  that  it  would, 
but  the  quantity  of  them  may  make  some  difference. 

Mr.  Hayes.  It  would  certainly  make  a  market  in  case  of 
emergency  for  that  many  bonds. 

Mr.  McCreary.  A  Government  2  per  cent  bond,  without  its  value 
as  carrying  circulation,  would  not  sell  for  more  than  80,  would  it? 

Mr.  Hamilton.  I  think  not. 

Mr.  McCreary,  Seventy- five.  Now,  if  it  raises  a  Government 
bond,  with  the  Government  back  of  it,  from  75  to  104,  or  108|  or  109, 
as  it  did  recently  on  a  2  per  cent  basis,  what  would  it  not  do  under 
the  same  conditions  with  municipal  bonds  and  railway  bonds  and 
such  things  as  that  on  a  4  per  cent  basis?  It  would  give  them  a 
fictitious  value,  simply  because  they  carried  with  them  the  right  of 
taking  out  circulation. 

Mi-r  Hamilton.  I  do  not  think  it  would  inflate  them  in  the  same 
proportion,  though,  that  it  would  inflate  the  Government  bond,  for 
the  reason  that  there  would  not  be  the  contemplated  use  of  as  great 
a  number  of  them. 

Mr.  McCreary.  Would  not  the  effect  be.  if  there  were  more  to  be 
inflated,  that  the  Government  at  large  would  suffer  more  than  under 
the  Government  bond  which  is  an  assured  thing,  by  reason  of  taking 
a  railroad  bond  which  has  a  very  changeable  sort  of  value? 

Mr.  Hamilton.  One  of  the  difficulties  in  putting  that  measure 
into  operation  is  that  these  securities  are  to  be  taken  at  a  certain 
per  cent  of  their  market  value.  Now,  what  that  market  value 
might  be  in  ordinary  times  and  what  it  might  be  in  times  of  a  panic 
would  make  a  whole  lot  of  difference.  Whether  they  have  covered 
that  in  their  bill  or  not  I  do  not  know. 

Mr.  McCreary.  Is  it  not  a  fact  that  in  this  late  panic  bonds  of 
good  intrinsic  value  had  not  any  market  value,  comparatively  speak- 
ing, and  was  not  that  one  reason  for  desiring  to  help  things  out,  to 
increase  the  collateral  value  of  those  bonds,  because  if  they  went  be- 
yond a  certain  point  the  collateral  value  of  the  bonds  would  be 
swept  out,  and  the  people  of  the  country  at  large  and  the  banks 
would  get  into  trouble? 

Mr.  Hamilton.  Yes. 

Mr.  Hayt:s.  How  long  have  you  been  engaged  in  banking,  Mr. 
Hamilton  ? 

Mr.  Hamilton.  How  long  have  I  been  engaged  in  banking? 

Mr.  Hayes.  To  put  it  a  little  more  directly,  does  your  knowledge 
and  memory  run  back  to  the  days  in  Illinois  and  Indiana  when  they 
had  the  red  and  yellow  dog  currency? 

Mr.  Hamilton.  No,  sir;  I  was  born  in  1862. 

Mr.  Hayes.  But  you  may  know  in  other  ways  in  regard  to  it.  I 
have  seen  various  statements.  That  was  a  bond-secured  circulation, 
was  it  not? 

Mr.  Hamilton.  In  some  States,  yes. 

Mr.  Hayes.  Indiana  and  Illinois  I  speak  of,  # 

Mr.  Hamilton.  I  tliink  it  was. 


CURRENCY  LEGISLATION.  119 

Mr.  Hayes.  But  the  weakness  of  it  was  that  the  banks  did  not 
have  the  gold  to  redeem  it.  as  T  remember  it. 

M.  Hamilton.  Yes. 

Mr.  Hayes.  I  have  not  looked  at  this  bill  as  amended,  but  do  you 
not  think  that  the  Aldrich  bill  has  something  of  that  weakness? 

Mr.  Hamilton.  I  can  not  tell.  I  have  not  had  a  chance  to  read  it 
carefully. 

Mr.  Hayes.  It  does  not  provide  for  5  per  cent  or  any  other  gold 
to  redeem  it. 

Mr.  Hamilton.  I  have  not  had  a  chance  to  read  it  carefull5\ 

Mr.  Hayes.  Well,  suppose  it  did  not  provide  any  fund  to  be  put 
up  b}^  the  Government  to  redeem  those  notes  in  gold.  Would  not  that 
be  such  a  weakness  as  that  in  times  of  stress  it  would  be  likely  not  tO' 
circulate  ? 

Mr.  Hamilton.  It  might  possibly  discredit  the  notes.  Of  course 
if  you  have  a  5  per  cent  guaranty  up,  it  will  strengthen  the  notes. 
Your  question  suggests  another  matter  to  my  mind,  and  that  is  this : 
There  has  been  a  demand  that  State  institutions  be  permitted  to  issue 
circulating  notes  under  some  provision.  I  am  a  State  banker,  and 
vice-president  of  such  an  institution,  yet  I  do  not  believe  that  such  a 
measure  is  a  safe  measure  for  this  country  to  adopt.  I  think  it  would 
tend  to  lead  us  back  to  those  conditions  that  formerly  existed,  because 
of  the  lack  of  uniformity  of  the  different  State  laws — not  on  the 
ground  that  they  are  not  safe,  solvent,  and  sound  State  banking  insti- 
tutions. They  are  just  as  safe  and  strong  as  the  national  institutions, 
but  the  diversity  of  laws  would  make  it  dangerous  for  such  a  measure 
to  be  enacted. 

Mr.  Pujo.  Could  not  all  this  trouble  be  obviated  by  the  repeal 
of  the  limitation  which  permits  retirement  up  to  $9,000,000  a  month, 
so  that  the  national  banks  of  this  country  could  take  out  $300,000,000 
additional  if  they  desired  to  prevent  panics  in  the  future,  and  pay  the 
impost  or  duty  due  the  Government  thereon  for  actual  circulation? 

Mr.  McKiNNEY.  The  difficulty  would  be  that  they  could  not  secure 
the  bonds,  would  it  not? 

Mr.  Pujo.  I  want  him  to  answer  this  question  first.  Could  not  all 
this  trouble  be  obviated  if  the  authorized  circulation  be  taken  out,  if 
the  banks  were  willing  to  pay  half  of  1  per  cent  duty? 

Mr.  Hayes.  And  repeal  the  limitation? 

Mr.  Pujo.  Kepeal  the  limitation  of  $9,000,000  a  month  entirely. 

Mr.  Hamilton.  It  would  tend  to  make  the  currency  of  the  country 
more  elastic ;  but  there  is  danger  of  the  retirement  too  rapidly  of 
the  bond-secured  circulation,  which  might  work  disastrously. 

Mr.  Pujo.  Are  you  aware  that  it  has  been  argued  by  the  national 
banks  of  the  country  that  the  entire  circulation  was  not  taken  out, 
primarily,  because  it  was  not  sufficientlj'^  profitable,  and.  secondly, 
because  they  could  not  retire  it  when  they  had  no  more  use  for  it  ? 

Mr.  Hamilton.  Yes. 

Mr.  Pujo.  Would  $300,000,000  additional,  to  be  a  permanent  addi- 
tion to  the  circulating  medium  of  this  country,  be  sufficient  to  pre- 
vent the  ordinarily  recurring  panics,  such  as  we  have  had? 

Mr.  Hamilton.  I  think  that  would  be  sufficient.  The  best  illustra- 
tion of  that  is  from  the  report  of  the  Secretary  of  the  Treasury, 
just  published.  It  says — I  have  it  here — that  the  total  issue  was 
$296,125,469. 


120  CURRENCY   LEGISLATION. 

The  Acting  Chairman.  That  is  the  total  issue  at  what  time? 

Mr.  Hamilton.  During  this  recent  disturbance. 

The  Acting  Chair^ian.  How  much? 

Mr.  Hamilton.  $296,125,469. 

Mr.  Hayes.  That  is  the  circulation. 

The  Acting  Chairman.  I  want  the  additional  circulation,  by 
national-bank  notes. 

Mr.  Hayes.  It  is  $140,000,000,  in  round  numbers. 

Mr.  Hamilton.  The  report  says:  "  The  amount  of  currency  which 
disappeared  from  sight  during  this  period,  substantially,  as  can  be 
ascertained  from  national-bank  reports  and  other  sources  of  informa- 
tion, was  about  $296,125,469,  as  follows;"  and  then  he  gives  the  dates. 

The  xA^CTiNG  Chairman.  That  is  the  disappearance? 

Mr.  Hamilton.  Yes. 

The  Acting  Chairman.  But  how  much  was  added? 

Mr.  Glass.  There  were  but  $97,000,000,  Mr.  Hayes,  as  I  under- 
stand it. 

Mr.  Hayes.  No;  $140,000,000. 

Mr.  Glass.  Of  increase  in  national-bank  circulation? 

The  Acting  Chairman.  And  there  were  one  hundred  and  ten 
millions  of  gold  ? 

Mr.  Hayes.  The  last  statement,  issued  on  the  first  of  January, 
shows  $140,000,000. 

Mr.  Pujo.  Would  it  or  Avould  it  not  be  practicable  to  require 
national  banking  associations  to  take  out  and  put  into  circulation  an 
amount  equal  to  their  capital  stock,  as  well  as  a  percentage  of  it.  as 
we  now  require  under  the  law  ? 

Mr.  Hamilton.  You  mean  to  force  them  to  issue  nine  hundred 
millions  ? 

Mr.  Pujo.  To  force  them  to  issue  an  amount  equal  to  their  capital 
stock. 

Mr.  Hamilton.  I  do  not  believe  that  would  be  a  good  policy  to  be 
adopted,  for  the  reason  that  you  have  immediately  caused  an  infla- 
tion of  that  much  money  or  notes  into  our  currency  system,  and  an 
inflation  to  that  extent  is  more  dangerous  than  to  leave  the  law  as  it 
now  is. 

Mr.  Pujo.  "\"\^iy  would  that  be  an  inflation,  if  such  circulation  were 
secured  by  Government  bonds,  and  even  their  capitalization,  when  the 
issue  of  a  credit-secured  note  by  a  bond  is  not  an  inflation,  when  we 
need  two  hundred  and  fifty  million  or  three  hundred  million  more 
dollars  to  meet  the  business  of  the  country  ? 

Mr.  Ha:milton.  If  you  compel  the  issue  of  it  you  compel  an  infla- 
tion if  you  issue  on  the  credit.  In  note  issuing,  for  instance,  as  we 
have  proposed  it,  it  is  optional  with  the  institutions  as  to  whether  or 
not  they  issue  such  notes,  and  such  an  issue  would  only  be  in  propor- 
tion to  the  demands  of  the  actual  business  necessities  of  the  country. 

Mr.  McCreary.  Right  on  that  line,  I  would  like  to  read  this : 

On  December  3.  1907,  a  proniiiipnt  bank  in  New  York  City  bad  deposits  of 
Government  money  to  tbe/ amount  of  .$4,22r),000 :  tbe  same  bank  at  tbe  same 
date  bad  an  ontstandins  circnlation  of  .$LS9,000;  tbe  ability  of  said  bank  to 
take  out  cii-cnJation  amounted  tr)  .$3,000,000. 

On  Derember  3,  1007,  a  i)rominent  bank  in  Pbiladelpbia  bad  Government 
deposits  of  ,$200,000;  at  tbe  same  date  it  bad  national-bank  notes  outstanding, 
$1,000,000:  its  ability  to  take  out  circulation  amounted  to  $1,000,000, 


CURRENCY   LEGISLATION.  121 

From  a  studj-  of  these  figures  it  will  be  seen  thar  tbe  distribution  of  Govern- 
ment moneys  as  between  these  two  banks  vA^as  not  only  grossly  unjust,  but  that 
it  had  no  relation  whatever  to  the  circ\ilation  taken  out,  which  might  be  sup- 
posed to  be  a  prime  consideration  moving  the  (joveriunent  in  the  deposit  of  its 
funds.  Certainly  the  official  utterances  from  Washington  during  the  past  two 
months  have  been  fraught  with  advice  and  exhortation  to  the  banks  to  take 
out  circulation.  So  anuch  for  rhetoric;  but  the  practical  application  of  this 
advice  would  seem  to  have  been  quite  in  an  opposite  direction. 

When  it  was  recently  proposed  to  issue  additional  circulation  under  ex- 
tremely favorable  conditions  of  ])rofit  to  the  banks,  only  those  banks  which  had 
not  done  their  full  duty  in  taking  out  circulation  up  to  the  legal  limit  were 
able  to  avail  themselves  of  the  opportunity.  Here,  again,  there  has  been  the 
clearest  inducement  created  that  in  the  future  national  institutions  sball  keep 
their  quota  imfilled  until  conditions  force  the  Government  to  offer  a  premium 
for  the  performance  of  a  plain  duty  to  the  community. 

Mr.  Glass.  That  is  absolutely  true.  too.  It  came  under  my  per- 
sonal observation. 

Mr.  Hayes.  Mr.  Hamilton,  I  Avant  to  ask  you — and  perhaps  you 
will  regard  it  as  a  remarkable  question — what  you  would  think  of 
a  proposition  of  this  kind :  To  permit  national  banks  to  take  out  cir- 
culation in  times  of  stress,  under  a  high  tax.  without  putting  up  bonds 
or  any  additional  security  other  than  to  make  the  note  the  first  lien 
on  the  assets  of  the  bank,  something  after  the  manner  they  do  in 
Germany  ? 

Mr.  Hainiilton.  I  would  want  to  see  your  bill  drafted  before  an- 
swering that. 

Mr.  Hayes.  You  see  what  my  thought  is? 

Mr.  Hamilton.  Yes.  I  doubt  whether  it  would  be  advisable  or 
not.    It  would  depend  on  the  draft  of  the  bill. 

Mr.  Hayes.  Do  you  think  if  such  a  bill  could  be  prepared  that  it 
would  be  safe  and  proper  and  all  right  ? 

Mr.  Hamilton.  Of  course,  I  would  hardly  know  how  to  answer 
that  question.  There  should  l3e  some  reserve.  I  think,  carried  against 
the  note. 

Mr.  Hayes.  Suppose  that  reserve  were  just  as  you  have  suggested, 
that  any  bank  that  has  20  per  cent  reserve  fund  might  issue  up  to  20 
per  cent  of  its  capital  stock,  by  paying  a  <>  per  cent  tax  on  it  in  times 
of  stress  without  putting  up  anything? 

Mr.  Hamilton.  And  no  additional  leaal  reserve  required  to  meet 
it? 

Mr.  Hayes.  Keep  a  legal  reserve,  of  course,  but  not  put  up  any- 
thing else   with  the   Government. 

Mr.  Hamilton.  That  is  a  good  deal  along  the  same  line  that  is  the 
basis  of  our  measure,  with  "the  exception  that  you  go  bej^ond  the 
capital,  and  we  try  to  confine  it  to  the  capital  of  the  institutions. 

Mr.  Hayes.  I  mean  a  currency  that  could  be  taken  out  without 
putting  up  a  fund  or  doing  anything  except  to  pay  the  tax  to  the 
Government  while  it  is  out. 

Mr.  Hamilton.  Who  would  determine  the  necessity  of  issuing  it? 

Mr.  Hayes.  Let  the  bank  determine  it,  if  it  wanted  to  pay  the 
tax. 

Mr.  Hamilton.  Well,  if  a  bank  issued  that  circulation  in  excess 
of  its  capital,  and  had  its  full  quota  of  circulation  outstanding,  that 
bank  would  immediately  become  discredited  for  so  doino-. 

Mr.  Hayes.  Whv  would  it.  anv  more  than  it  would  under  the 
Aldrich  bill? 


122  CURRENCY   LEGISLATION. 

Mr.  Hamilton.  The  Aldrich  bill  will  discredit  the  bank  issuing  it 
on  account  of  the  high  tax, 

Mr.  HxVYES.  Then  why  would  it  any  more  than  your  bill,  if  the 
currency  was   different  in   form  from  the  present  bank   currency? 

Mr.  Hamilton.  Because  we  are  limiting  ours  to  the  amount  of  the 
capital.  We  expect  a  limited  amount  of  the  currency  to  be  constantly 
in  circulation,  and  the  public  will  become  familiar  with  it,  as  it  is 
now  familiar  with  the  bond-secured  bank  notes. 

Mr.  Hayes.  Yes :  but  if  there  was  a  20  per  cent  reserve  behind  these 
20  per  cent  notes,  and  the  reserve  was  like  every  other  obligation  of 
the  bank,  and  the  notes  were  issued  just  like  our  present  national 
bank  circulation,  the  public  would  not  know  whether  it  was  in 
excess  of  the  capital  or  not. 

Mr.  Hamilton.  It  is  bound  to  show  in  any  statement  made  by  the 
banking  institution. 

Mr.  Hayes.  Oh,  yes:  it  would  show  in  the  statement;  that  is  true. 

Mr.  Hamilton.  And  the  public  would  become  aware  of  it.  If 
you  took  a  reserve  citv  that  would  show  in  the  weekly  statement,  and 
the  institution  would  instantly  become  discredited? 

Mr.  Hayes.  Well,  the  other  would  show,  too.  Your  circulation 
would  show. 

Mr.  Hamilton.  Our  circulation  would  show,  but  the  low  tax  pre- 
vents the  discrediting  of  the  institution.  A  high  tax  discredits  the 
bank  issue.  You  are  requiring  an  additional  20  per  cent  there 
to  the  amount  of  issue,  and  it  is  the  additional  20  per  cent  of  security 
in  some  form  or  other  that  increases  your  rate  of  tax  one-fifth : 

Mr.  Hayes.  Could  it  be  avoided  in  this  way?  Leave  it  with  the 
Comptroller  of  the  Currency  in  the  Treasury  to  say  whether  the  banks 
be  permitted  to  issue  them  or  not,  as  a  condition  for  not  making  the 
tax  so  high.     Would  that  change  the  situation  any  ? 

Mr.  Hamilton.  When  you  come  to  that  feature  I  think  you  are 
putting  a  tremendous  responsibility  on  that  Dej)artment,  in  the  con- 
stant demands  from  all  over  the  country  where  rates  of  interest  are 
high,  and  so  forth,  for  the  privilege  of  this  emergency  circulation. 

Mr.  Hayes.  That  is  true. 

Mr.  Hamilton.  In  other  words,  3'ou  are  putting  them  into  the 
banking  business. 

Mr  Hayes.  How  is  that  ? 

Mr.  Hamilton.  You  are  putting  that  Department  into  the  bank- 
ing business. 

Mr.  Hayes.  It  is  there  now,  so  far  as  that  is  concerned. 

Mr.  Mc Henry.  Would  it  not  be  just  as  profitable  for  a  national 
bank  to  take  out  this  currency  at  2^  per  cent  as  it  is  for  it  to  receive 
deposits  at  3  per  cent? 

Mr.  Hamilton.  It  would  be  profitable  if  you  could  keep  the  cur- 
rency out.  of  course,  because  you  are  carrying  the  same  reserve;  but 
our  contention  is  that  it  is  not  possible  to  keep  the  currency  in  cir- 
culation at  all  times  and  all  seasons  of  the  year. 

Mr.  McHenry.  Do  you  think  there  are  times  when  we  have  more 
currency  than  we  can  profitably  use  ? 

Mr.  Hamilton.  Yes:  that  is  unquestionable.  It  piles  up  in  the 
reserve  cities  by  the  millions. 

Mr.  McHenry.  If  your  bill  was  in  force  now  do  you  not  think  that 
a  greater  portion  of  this  issue  would  be  taken  out  immediately? 


CURRENCY  LEGTSLATION.  123 

Mr.  Hamilton.  I  should  think  it  would  be;  yes. 

Mr.  McIIenry.  Do  j^ou  not  believe,  still  further,  that  six  months 
from  now  when  business  gets  to  lioin^^  on,  and  there  is  a  new  boom, 
there  will  be  even  greater  need  for  it  than  there  is  to-day? 

Mr.  Hamilton.  I  think  you  will  find  inside  of  six  months  that  you 
have  too  much  currency  now,  and  that  you  have  an  inflation  in  this 
country. 

Mr.  McHenry.  You  will  if  the  business  depression  keeps  up ;  yes. 

Mr.  Hamilton.  We  are  in  course  of  liquidation  right  now,  you 
know,  and  I  think  you  will  find  that  the  interest  rates  will  swing 
the  other  way;  that  there  will  be  an  overabundance  of  money  in  a 
short  time  on  account  of  the  financial  depression  that  has  been 
brought  to  bear  in  this  country;  and  that  comes  about,  of  course, 
on  account  of  the  disturbance  of  our  business  conditions.  Every 
manufacturing  institution  and  every  line  of  business  has  curtailed 
its  business  now,  and  there  is  one  of  the  greatest  troubles  with  our 
banking  system  to-day.  It  is  that  it  tends  at  certain  periods  of 
years  to  cause  distrust  in  the  minds  of  the  public,  has  a  tendency  to 
cause  them  to  hoard  their  money,  and  through  the  inelasticity  of  our 
system  the  people  are  compelled  to  pay  excessive  rates  for  money  that 
they  use  in  different  seasons  of  the  year.  If  you  had  an  emergency 
circulation  the  rates  of  interest  in  this  country  would  be  more  uni- 
form the  year  round,  as  is  the  experience  in  foreign  countries  where 
they  have  such  circulation. 

Mr.  Gillespie.  You  mean  a  credit  currency  circulation,  and  not  an 
emergency  circulation? 

Mr.  Hamilton.  Yes. 

Mr.  McMorran.  Will  not  that  continue  as  long  as  the  Government 
continues  in  the  banking  business? 

Mr.  Hamilton'.  How  do  you  mean  in  the  banking  business  ? 

Mr.  McMorran.  That  is,  this  demand  for  currency  at  certain 
])eriods  of  the  j^ear  is  more  apt  to  occur  under  the  present  system  of 
our  banking  system  than  it  would  under  some  other.  In  other  words, 
the  Government  to-day  locks  up  large  amounts  of  the  people's  money, 
and  at  a  period  of  the  year  when  the  countr}'^  is  demanding  currency, 
it  is  locked  up  in  the  Treasury  vault  instead  of  being  deposited  in 
national  banks.  If  it  was  out  of  that  business  entirely,  and  Ave  liad 
some  form  of  currency  elastic  in  itself,  Avould  it  not  fit  the  needs  of 
the  Government  very  much  better  than  the  present  system? 

Mr.  Ha3iilton.  The  plan  we  advocate  would  give  us  this  elastic 
condition,  and  would  meet  the  conditions  that  are  occasioned  by  the 
Government  locking  up  its  surplus  money  from  time  to  time.  It 
would  help  to  relieve  that  situation. 

Mr.  ]\IcMoRKAN.  One  might  offset  the  other. 

Mr.  Hamilton.  Well,  when  the  Government  pays  out  its  money  the 
emergency  circulation  would  naturally  be  retired,  and  you  would 
have  a  sort  of  governor  between  the  two. 

Mr.  McHenry.  Do  you  not  believe  it  would  be  better  to  have  a 
graduated  tax  upon  this  money?  For  instance,  advancing  the  rate  to 
a  certain  point  if  it  is  kept  out  four  months,  and  advancing  it  a  little 
higher  if  it  is  kept  out  six  months,  in  order  to  force  it  back  and  com- 
pel elasticitj'^  ? 

Mr.  Hamilton.  Well.  Avhen  j^ou  adopt  a  graduated  tax,  you  change 
the  entire  nature  of  vour  bill  and  throw  the  responsibility  as  to  the 


124  CURRENCY   LEGISLATION. 

necessity,  the  time,  and  the  amount  of  issue  upon  some  individual, 
the  Comptroller  of  the  Currency  or  Secretary  of  the  Treasury, 
perhaps. 

Mr.  Hayes.  You  might  make  it  a  graduated  tax  for  the  amount 
that  is  out.  That  might  make  it  a  little  more  certain  to  be  elastic. 
Suppose  you  begin  with  2^  per  cent  and  issue  10  per  cent  of  that, 
and  for  the  next  10  per  cent  raise  it. 

Mr.  Hamilton.  That  must  depend  upon  the  length  of  time  it  shall 
stay  out,  and  so  on.    It  makes  additional  complication. 

Mr.  McKiNNEY.  You  believe,  do  you  not.  that  there  is  and  has 
been  under  ordinary  conditions  at  the  crop  moving  time  of  the  year 
in  this  country  an  inadequate  amount  of  circulating  medium? 

iNIr.  Hamilton.  Why,  that  has  been  demonstrated  fully.  It  is 
estimated  that  from  one  hundred  and  fifty  million  to  three  hundred 
million  is  required  annually. 

Mr.  McKiNNEY.  In  this  last  trouble  that  we  passed  through  there 
was  at  no  time  any  criticism  of  the  money  that  was  in  circulation? 
Xo  one  was  afraid  of  the  money? 

Mr.  Hamilton.  No;  they  were  glad  to  get  it. 

Mr.  McKiNNEY.  And  there  was  no  criticism.  Well,  do  you  not  be- 
lieve it  is  almost  as  important,  if  not  inllj  as  important,  in  trying  to 
remedy  the  situation,  and  to  supply  more  money,  that  we  should  sup- 
IdIv  a  quality  of  money  that  would  in  no  way  raise  a  suspicion  as  to 
its  value  ? 

Mr.  Ha^iilton.  Yes,  sir;  that  is  very  important. 

Mr.  McKiNNEY.  Do  a^ou  believe,  under  the  provisions  of  this  bill 
that  your  Commission  adopted,  that  there  could  be  any  suspicion  of 
the  currency?  Can  you  figure  out  in  any  reasonable  way  how  any 
note  holder  could  lose? 

Mr.  Ha:milton.  Xo;  I  can  not  possibly  do  so.  Another  argument 
in  favor  of  our  measure  as  compared  with  a  bond-secured  currency 
measure — and  it  has  been  fully  demonstrated  in  my  mind  from  the 
figures  that  were  presented  a  little  while  ago — is  that  in  September  we 
had  $551,000,000  of  bond-secured  circulation,  and  up  to  December  23 
they  were  only  able  to  increase  that  circulation  $50,000,000;  and  onr 
Januarv  1.  I  believe,  the  statement  that  the  gentleman  presented  here 
showed^that  they  had  an  increase  of  $190,000,000.  That  was  after  the 
trouble  was  mostly  over. 

]\rr.  Hayes.  One  hundred  and  forty  million  dollars? 

Mr.  IlAMiLroN.  Well,  the  sum  total  would  be  $140,000,000.  It 
Avoiild  have  been  $93,000,000  from  December  23  to  December  31,  so  it 
showed  that  that  method  of  handling  it,  determining  values  and  get- 
ting securities,  is  a  very  slow  process. 

Mr.  Hayes.  Six  hundred  and  ninety-one  million  dollars  on  the 
1st  of  January  and  $451,000,000  on  the  1st  of  September.  AYere  not 
those  the  figures? 

Mr.  Hamilton.  Five  hundred  and  fifty-one  million  dollars  in 
September. 

Mr.  Hayes.  That  would  make  $140,000,000  increase. 

Mr.  Hamilton.  One  hundred  and  fortv  million  dollars. 

Mr.  Hayes.  And  all  but  about  $50,000,000  of  it  in  the  last  week  of 
tlie  year. 

Mr.  Hamilton.  I  do  not  want  to  take  up  all  your  time,  Mr.  Chair- 
man— = — 


CURRENCY  LEGISLATION.  125 

Mr.  Glass.  Let  me  ask  one  question  right  there.  Can  3-011  tell  me 
how  the  Aldrich  bill,  with  its  emergency  currency  taxed  at  G  per 
cent,  could  afford  any  relief  in  the  crop-moving  period? 

Mr.  Hamilton.  I  do  not  believe  that  a  high-tax  bill  would  ever  be 
of  any  material  advantage  to  give  us  a  currency  at  that  time — a 
bond-secured  currency. 

Mr.  Hayes.  I  think  your  suggestion  is  correct,  that  the  minute  the 
bank  takes  out  that  high-taxed  circulation  there  will  be  a  rim  on  it. 
That  is  about  the  situation.    It  will  be  a  flag  of  distress  right  off. 

Mr.  Hamilton.  If  it  were  announced  to-morrow  that  New  York 
was  going  to  issue  that  kind  of  notes  all  of  us  fellows  in  Illinois 
would  commence  to  transfer  our  balances. 

Mr.  Hayes.  You  would  be  foolish  if  you  did  not. 

Mr.  McKiNNEY.  Now\  let  us  take  the  practical  w-orkings  of  the 
different  bills.  '  Under  the  present  system  of  national  banks,  when 
this  crisis  came  on,  they  were  unable  to  avail  themselves  in  many 
instances  of  the  privilege  of  taking  out  notes  on  account  of  the  fact 
that  they  would  have  to  take  out  more  moneA^  for  the  Government 
bonds  to  secure  the  circulation  than  they  would  secure  notes  after  they 
had  bought  them.  It  would  place  them  in  a  worse  condition,  as  far 
as  available  cash  was  concerned,  than  they  were  in  before;  and  I  can 
not  see  but  what  that  same  criticism  would  apply  measurably  to  the 
Aldrich  bill. 

Mr.  Hamilton.  It  will,  if  they  wait  until  the  time  of  panic  to  pro- 
cure them. 

Mr.  INIcKiNNEY.  Well,  under  your  bill — I  should  say  my  bill 

Mr.  Hamilton.  Yes;  it  is  your  bill. 

Mr.  McKiNNEY.  Under  my  bill  you  could  secure  circulation,  and 
under  this  limit  of  taxation,  putting  up  5  per  cent,  and  all  that,  to  a 
greater  amount  than  you  pay  out,  you  would  be  better  off  than  you 
were  before. 

Mr.  Haiveilton.  You  could  meet  the  emergency. 

Mr.  McKiNNEY.  You  would  get  more  money  on  hand  through  that 
method,  although  you  would  have  to  pay  to  get  the  advantage  of  that. 

Mr.  MoRRAN.  How  do  you  figure  that  out?  Suppose  you  want 
one  hundred  municipal  bonds 

The  Acting  Chairman.  He  is  talking  about  his  bill,  and  not  tlie 
Aldrich  bill. 

Mr.  McKiNNEY.  Under  the  present  plan,  as  you  can  see,  I  would 
have  to  buy  Government  bonds  to  get  the  circulation,  and  I  would 
have  to  pay  the  premium  that  would  prevail,  and  then  I  would  be 
allowed  the  amount  of  the  face  value  of  the  bonds.  I  have  paid  out 
a  percentage  more  in  premium  than  I  would  get ;  so  I  would  be  worse 
off  than  before  I  availed  myself  of  it.  Under  this  bill  I  would  not 
have  to  buy  any  bonds. 

Mr.  Hajiilton.  Before  you  close  your  meeting,  gentlemen,  I  want 
to  make  this  suggestion  to  you.  It  is  simply  a  suggestion  as  to  the 
strength  of  this  measure  in  the  mind  of  the  public.  I  am  satisfied 
that  if  this  committee  will  report  this  bill  to  the  House  with  any 
slight  modification  that  may  be  deemed  advisable,  you  will  be  sur- 
prised at  the  sup]oort  it  will  have  from  every  section  of  this  country. 
This  measure  is  like  everything  else  of  the  =ame  nature.  In  times  of 
prosperity  the  people  paid  no  attention  to  its  advocates,  or  those  ad- 
vocatinof  such  measures.     Thev  had  plentv.  and  did  not  think  they 


126  CURRENCY   LEGISLATION. 

could  in  any  wise  be  affected  by  a  panicky  condition.  Even  since  the 
meeting  of  our  convention  at  Atlantic  City  the  conditions  have 
changed,  as  you  Members  of  Congress  all  know.  There  are  more 
students  of  finance  in  the  United  States  than  you  ever  dreamed  of. 
Now  the  people  have  become  alive  to  the  situation,  and  I  could  furnish 
you  letters  by  the  thousand,  if  you  had  the  time  to  consider  them,  in- 
dorsing this  measure,  and  backing  up  the  position  taken  by  your  com- 
mittee last  year.  The  people  of  the  country  are  alive  to  the  situation, 
and  they  are  demanding  that  some  kind  of  legislation  be  had. 

Mr.  Hayes.  That  is  true. 

Mr.  Hamilton.  And  another  thing  in  connection  with  it.  One  of 
the  strongest  features  in  connection  with  the  proposed  legislation  is 
that  it  can  be  put  in  operation  without  disturbing  a  single  condition 
that  exists,  and  it  is  optional  with  any  banking  instituton  whether  or 
not  it  ever  avail  itself  of  the  privileges  in  this  measure. 

Mr.  Hayes.  In  other  words,  it  is  there  if  they  need  it  ? 

Mr.  Hamilton.  It  is  there  if  they  need  it. 

Mr.  McMoRRAN.  I  do  not  believe  you  will  ever  get  any  bill  through 
this  House  until  the  members  from  the  different  districts  hear  from 
their  constituents.  Now,  when  the  bill  was  introduced  at  the  last 
session  of  Congress,  I  did  not  get  a  single  letter  from  my  district 
relative  to  the  bill;  and  I  inquired  of  the  different  members  of  my 
delegation,  and  not  a  single  letter  had  they  received. 

The  Acting  Chairman.  And  this  same  bill  was  introduced,  prac- 
tically, and  argued  on  the  floor. 

Mr.  McMorran.  Yes.  Now,  until  there  is  some  pressure  brought 
to  bear  from  every  section  of  the  country,  on  every  Member  of  Con- 
gress, I  do  not  believe  you  will  succeed  in  getting  a  bill  through  the 
House. 

The  Acting  Chairman.  I  think  only  two  of  us  spoke  on  the  bill, 
Mr.  Fowler  and  myself,  about  a  year  ago.  Now,  let  me  ask  you  one 
further  question.  Suppose  we  should  see  fit,  as  a  committee,  to  make 
your  notes  redeemable  over  your  own  counters,  or  in  some  redemption 
agency,  in  gold 

Mr.  Hayes.  Or  with  the  Comptroller  of  the  Currency,  the  Treas- 
ury Department. 

The  Acting  ChairzmAn.  Well,  wherever  it  should  be,  redeemable 
in  gold. 

Mr.  Hamilton.  We  would  not  have  any  objection  to  that  whatever. 

The  Acting  Chairman.  That  is  throwing  the  burden  upon  the 
banks  to  redeem  their  own  money  in  gold  if  they  issue  it. 

Mr.  Hamilton.  Yes,  if  it  is  demanded.  , 

The  Acting  Chairman.  And  if  they  do  not  issue  it  under  the  pro- 
visions of  the  law,  then  there  is  nothing  to  relieve — instead  of  adding 
to  the  burden  now  placed  upon  the  Government  to  maintain  all  its 
money  upon  a  gold  basis. 

Mr.  Hamilton.  Our  commission  would  not  object  to  that. 


CURRENCY   LEGISLATION. 


127 


The  statement  referred  to  in  Mr.  Hamilton's  remarks  is  as  follows : 

The  following  is  the  amount  of  credit  notes  that  could  be  issued  in  each  of  the 
following  States  under  the  law  proposed  by  the  currency  commission  of  the  American 
Bankers'  Association: 

[Capital  as  shown  by  Comptroller  of  Currency's  Report  September,  1907.1 


No. 
banks. 


State. 


72 

2 

14 

37 

128 

104 

80 

24 

12 

36 

87 

4 

34 

395 

223 

168 

304 

203 

141 

37 

79 

98 

20:5 

93 

253 

27 

113 

38 

196 

8 

56 

172 

39 

404 

60 

121 

361 

136 

55 

733 

22 

26 

87 

78 

521 

18 

50 

100 

45 

90 

127 

29 

1 


Alabama 

Alaska 

Arizona 

Arkansas 

California 

Colorado.... 

Connecticut 

Delaware 

District  of  Columbia. 

Florida 

Georgia 

Hawaii 

Idaho 

Illinois 

Indiana 

Indian  Territory 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Mas.sachusetts. 


3, 
29, 

9, 
20, 

2 

5! 
3, 

S, 

1, 
54, 
23, 

7, 
18, 
12, 
10, 

8, 

9. 

17, 

59, 

Michigan '      13, 


6,544 


20 
3, 

28, 
3, 

12, 
1, 
5, 

19, 

1, 

159, 

5, 

4, 

59, 

4, 

3, 

Pennsylvania '. j    112 


Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Hampshire 

New  .Tersey 

New  Mexico 

New  York 

North  Carolina . 
North  Dakota. . 

Ohio 

Oklahoma 

Oregon 


Rhode  Island. 
South  Carolina. 
South  Dakota . . 

Tennessee 

Texas 

Utah 

Vennont 

Virginia 

Washington. . . 
West  Virginia. . 

Wisconsin 

Wyoming 

Porto  Rico 


United  States. 


975.000 
100;  000 
755, 000 
690, 000 
796,900 
123, 500 
155, 050 
273,985 
402,000 
995, 000 
959, 000 
610,000 
775, 000 
571,250 
315,000 
127, 500 
735,000 
031,540 
058,  400 
989, 920 
401,000 
743,215 
217.500 
963,915 
341,000 
300, 000 
955, 000 
519, 500 
261,770 
607, 300 
210,000 
708, 230 
918, 041 
109,000 
620, 000 
395,000 
631,800 
885, 000 
866,000 
433,998 
700, 250 
485,000 
287,500 
260,000 
679,900 
180,000 
085,000 
176, 800 
547,750 
733, 500 
555, 000 
585, 009 
100,000 


3  per  cent        5  per  cent 
credit  notes,   credit  notes. 


SI,  990, 625 

25,000 

188,750 

922, 500 
7,449,225 
2, 280, 875 
5, 038, 762 

568,496 
1,3.%,  £00 

998, 750 
2, 2:39, 750 

152, 500 

443, 750 
13,642.812 
5, 928, 750 
1,781.875 
4,683,7.50 
3,007,885 
4.014,600 
2, 247, 480 
2.350.250 
4,  435, 804 
14.804,375 
3,490,978 
5,085,250 

825,000 
7, 238, 750 

879,875 
3,06.5,442 

401,750 
1,302,500 
4,927,057 

479, 510 

39, 777, 400 

1,405,000 

1,098,750 

14,907,950 

1,221,250 

966, 500 

28, 108, 499 

1,675,062 

871,250 

821,875 
2,315,000 
9,919,975 

545,000 
1,421,250 
3,043,950 
1,036,937 
1,933,375 
3, 888, 750 

396,2.50 
25, 00  J 


6,451,314  I     224,112,828 


$996,875 

12,500 

94,375 

461,250 

3,724,612 

1,140,4.37 

2, 519,. 381 

284, 248 

675, 250 

499, 375 

1,119,875 

76, 250 

221,875 

6,821.406 

2,914,375 

890, 9:;7 

2,341,875 

1,503,942 

2,007,300 

1. 123, 740 

1.175,125 

2,217,902 

7.  402, 187 

1,745,489 

2, 542, 625 

412, 500 

3,019,375 

439,937 

1,532,721 

200,875 

651,250 

2, 463, 528 

239, 755 

19, 888, 700 

702, 500 

549,375 

7,453,975 

610,625 

483, 250 

14,054,249 

837,531 

435, 625 

410,937 

1,157,500 

4,959,987 

272,500 

710, 025 

1,521,975 

813,468 

906, 1)87 

1,944,375 

198, 175 

12, 500 


Total  note 
issue. 


$2, 990, 625 

37,500 

283, 125 

1,-383,750 

11,173,84;} 

3,421,312  . 

7, 5.58, 143 

8.52, 744 

2,025,750 

1,  498, 125 

3,359,625 

228,750 

665,625 

20,  464, 218 
8, 743, 125 
2.672.812 
7,025,625 
4.511,827 
6,021,900 
3,371,220 
3,525,375 
6,653,706 

22, 206, 562 
5, 236, 468 
7,627,875 
1,237,500 

10,858,125 
1,319,812 
4, 598, 163 
602, 625 
1,953,750 
7, 390, 586 
719,265 

59, 666, 100 
2,107,500 
1,648,125 

22,301,925 
1,831,875 
1,449,750 

42, 162, 749 
2,512,593 
1,306,875 
1,232,812 
3, 472, 500 

14,879,962 

817,500 

2,131,875 

4,56,5,025 

2, 455, 405 

2,900,062 

5,833,125 

594, 425 

37,500 


112,056,414  ,      336,169,242 


GEOGRAPHICAL  DIVISIONS. 


490 

1,443 

1,312 

1,869 

1,121 

303 

5 

6,544 


New  England  States... 

Eastern  States 

Southern  States 

Middle  Western  States 

Western  States 

Pacific  States 

Island  posessions 

United  States 


$106,368,800 

316,671,028 

130,921,520 

235,067,965 

60,134,351 

46,577,650 

710, 000 


$26, 
79, 
32, 
58, 
15, 
11, 


592,200  I 
167,757  i 
730, 380 
766,991 
033,587 
644,412  ■ 
177,500 


$13,296. 

39,583, 

16, 365, 

29,383, 

7,516, 

5,822, 

88, 


100 

878 
190 
495 
793 
216 
750 


$39, 
118, 
49, 

88, 
22, 

17, 


888,300 
751,635 
095,570 
150, 486 
550,381 
466, 628 
266, 250 


896,451,314   224,112,828  1  112,056,414    336,169,242 


128 


CURRENCY   LEGISLATION. 


RESERVE"  CITIES. 


If  the  plan  of  the  American  Bankers'  Association  were  now  a  law  the  banks  of  the 
reserve  cities  could  issue  credit  notes  as  follows: 


Capital,  na- 
tional banks. 


3  per  cent 
credit  notes. 


5  per  cent 
credit  notes. 


Total  credit 
currency- 
notes. 


Atlanta,  Ga ,  82,100,000 

Albany,  N.  Y j  2, 100, 000 

Brooklyn,  N.Y !  1,602,000 

Baltimore,  Md !  12, 740, 700 

Boston,  Mass '  26,050,000 

Cincinnati,  Ohio 13,300,000 

Cleveland,  Ohio 9,350,000 

Columbus,  Ohio :  3,550,000 

Chicago,  lU :  27, 650, 000 

Cedar  Rapids,  Iowa '  400,000 

Denver,Colo .    3,200.000 

Des  Moines,  Iowa 800, 000 

Dubuque,  Iowa •  600,000 

Detroit,  Mich •. 4,750,000 

Dallas,  Tex 2,400,000 

Fort  Worth,  Tex 1,925,000 

GalTeston,  Tex 425,000 

Houston,  Tex 2,500,000 

Indianapolis,  Ind 5,100,000 

Kansas  City,  Mo 3,300,000 

Kansas  City,  Kans 1,000,000 

Los  Angeles,  Cal 5,550,000 

Lincoln,  Nebr 650,000 

Louisville,  Ky 4,945,000 

Minneapolis,  Mirm 5,700,000 

New  York,  N.  Y 114,580,000 

New  Orleans,  La 6,025,000 

Omaha,  Nebr ■     2,800,000 

Portland,  Oreg 1,250,000 

PhUadelphia,  Pa 22,305,000 

Pittsburg,  Pa 29,100,000 

St.  Louis.  Mo 19,100,000 

San  Francisco,  Cal I  13,800,000 

St.  Paul,  Minn 4,100,000 

Savannah,  Ga '<  750,000 

Salt  Lake  City,  Utah ;  1,200,000 

Seattle,  Wash 1,750,000 

St.  Joseph,  Mo 900,000 

Waco,  Tex '  800,000 

Washington,  D.  C 5,150,000 

Wichita,  Kans 500,000 


§525,000 

525,000 

400,500 

3, 185, 175 

6, 512, 500 

3,325,000 

2,337,500 

887,500 

6, 912, 500 

100,000 

800,000 

200,000 

150,000 

1,187,500 

600,000 

481,250 

106,250 

625,000 

1,275,000 

825,000 

250,000 

1,387,500 

162,500 

1,236,250 

1,425,000 

28,645,000 

1,-506,250 

700,000 

312,500 

5,576,250 

7,275,000 

4,775,000 

3,450,000 

1,025,000 

187,500 

300,000 

437,500 

225,000 

200,000 

1,287,500 

125,000 


S262, 500 

262,500 

200,250 

1,592,587 

3, 256, 250 

1,662,500 

1,168,750 

443, 750 

3,  456, 250 

50,000 

400,000 

100,000 

75,000 

593,750 

300,000 

240,625 

53,125 

312,500 

637,500 

412,500 

125,000 

693,750 

81,250 

618,125 

712,500 

14,322,500 

753,125 

350,000 

156,250 

2,783,125 

3,637,500 

2,387,500 

1,725,000 

512,500 

93,750 

150,000 

218,750 

112,500 

100,000 

643,750 

62,500 


$787, 500 

787,500 

600,750 

4, 777, 762 

9, 768, 750 

4,987,500 

3,506,250 

1,331,250 

10, 368, 750 

150,000 

1,200,000 

300,000 

225,000 

1,781,250 

900,000 

721,875 

159,375 

937,500 

1,912,500 

1,237,500 

375,000 

2,081,250 

243,750 

1,854,375 

2,137,500 

42,967,500 

2,259,375 

1,050,000 

468,750 

8,359, .375 

10,912,500 

7,162,500 

5,175,000 

1,537,500 

281,250 

450,000 

656,250 

337,500 

300,000 

1,931,250 

187,500 


CUBRENCY  LEGISLATION. 


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CURRENCY   LEGISI^TION.  131 

ADDITIONAL    STATEMENT    OF    W.   V.    COX,    PRESIDENT    SECOND 
NATIONAL  BANK,  WASHINGTON,  D.  C. 

Mr.  Cox.  Mr.  Chairman,  ineutioii  was  made  this  morning  about 
the  position  taken  by  the  members  of  the  commission,  especially  Mr. 
Forgan.  I  find  a  letter  from  Mr.  Forgan  in  The  Economist,  pub- 
lished in  Chicago,  January  18,  1908,  on  the  Aldrich  bill;  and  in  view 
of  the  discussion  that  has  taken  place  I  think  it  would  be  very  useful 
to  the  members  of  the  committee  if  that  were  added  to  your  hearings 
to-day. 

Mr.  Hayes.  I  would  like  to  have  it. 

The  Chairman.  That  may  be  inserted  in  the  record. 

(The  letter  above  referred  to  will  be  found  at  the  end  of  Mr.  Cox's 
remarks.) 

Mr.  Cox.  I  want  to  say  that  it  must  be  distinctly  understood  that 
that  refers  to  the  original  Aldrich  bill.  There  is  one  matter,  speak- 
ing locally,  that  is  rather  exceptional  so  far  as  Washington  is  con- 
cerned, and  that  is  that  this  city  was  the  only  city  of  its  size  that  did 
not  go  to  the  clearing-house  certificate  during  this  period  of  depression 
and  panic'.  We  met  all  our  obligations  in  every  way.  There  were 
no  failures,  and  while  we  did  not  discount  much  paper,  speaking  of 
my  own  bank,  we  took  care  of  our  people.  But  as  soon  as  it  was 
learned  outside  that  we  were  on  a  currency  basis,  instead  of  a  clearing- 
house certificate  basis,  every  device  known  to  man  was  made  to  get  our 
money,  and  we  had  to  scan  that  very  carefully.  But  I  fancy  that  the 
condition  here  was  dtie  to  the  fact  that  there  is  a  great  deal  of  public 
money  paid  out  here.  We  are  very  near  the  Treasury  Department, 
and  in  that  way,  with  these  large  buildings  going  up  here,  we  were 
able  to  meet  the  obligations  that  came  upon  us. 

I  have  in  my  pocket  a  statement  that  has  never  been  published. 
I  hatl  it  made  up.  It  is  a  comparative  statement  showing  the  con- 
dition of  these  local  banks  during  the  panic.  It  is  of  considerable 
interest  in  that  it  shows  what  the  increases  and  decreases  were  during 
a  given  period.  In  every  institution  in  the  city  excepting  three 
there  was  a  decrease  in  deposits.  There  was  a  general  decrease  of 
$1,820,000  in  national  banks,  $178,000  in  savings  banks,  and  $1,583,- 
000  in  trust  companies.  The  percentages  are  also  shown  here.  I 
will  leave  that  with  the  committee  if  it  is  desired. 

The  letter  of  James  B.  Forgan,  referred  to  by  Mr.  Cox,  is  as  fol- 
lows : 

Thk  Alurich  Bill. 

letter  of  james  b.  forgan,  president  of  the  first  national  bank  of  chicago, 

to  senator  hopkins. 

I  have  your  favor  of  the  7th  inclosing  a  copy  of  Mr.  Aldrich"s  bill  to  amend  the 
national  banking  laws,  of  which  you  desire  my  opinion.  It  seems  to  me  the  national 
bank  act  itself  might  with  good  reason  liave  been  entitled  "  .'Vn  act  to  provide  an  arti- 
ficial market  for  Government  bonds,"  and  that  this  proposed  amendment  might  with 
equally  good  reason  be  entitled  ""  An  act  to  provide  an  artificial  market  for  municipal 
and  railroad  bonds."  I  can  imagine  no  other  motive  for  its  enactment  than  an  attempt 
to  enhance  the  value  of  the  bonds  referred  to,  but  I  am  doubtful  if  ultimately  it  would 
be  effective  in  accomplishing  even  that,  because  I  do  not  l)elieve  the  banks  will  avail 
themselves  of  it  and  it  will  become  a  dead  letter. 

No  bank  from  the  standpoint  of  its  credit  in  its  own  community  could  individually 
afford  to  avail  itself  of  the  privilege  of  taking  out  circulation  at  a  cost  of  at  least  7  per 
cent  (in  addition  to  the  6-per-cent  ta.x  theVe  would,  of  course,  be  the  ordinary  expense  of 
printing,  transportation,  redeeming,  etc.  >.     If  it  ever  should  be  tised,  it  would  have 


132  CURRENCY  LEGISLATION. 

to  be  on  the  united  action  of  the  banks  in  a  particular  clearing-house  association  or  com- 
munity. I  -would  even  be  doubtful  if  any  reserve  clearing-house  association  outside 
of  New  York  City  would  care  to  take  it  out  without  the  cooperation  of  all  the  reserve 
cities  in  the  same  section  of  the  country.  The  taking  out  of  such  a  currency  would 
be  notice  to  each  community  using  it  that  an  emergency  exists  and  the  public  would 
act  as  they  always  have  and  always  will  act  whenever  it  becomes  generally  known 
that  an  emergency  exists.  They  would  start  to  withdraw  their  money  from  the 
banks  and  hoard  it. 

But  a  more  important  and  more  radical  objection  is  that  the  use  of  it  would  cripple 
the  national  banks  (which  are  99  per  cent  commercial  banks)  in  their  ability  to 
accommodate  their  commercial  customers.  In  order  to  get  the  necessary  bonds  to 
pledge  as  collateral  security  for  it,  they  must  before  getting  it  invest  at  least  133  cents 
for  every  dollar  of  it  they  take  out.  Whereas  if  instead  of  investing  in  such  bonds 
they  should  loan  their  money  direct  to  their  commercial  borrowers  it  is  self-evident 
they  would  have  33  per  cent  of  the  amount  invested  available  for  such  loans. 

Further,  it  is  a  fact  that  national  banks  do  not  invest  except  to  a  very  small  extent 
in  such  bonds.  As  a  rule  they  can  not  afford  to.  and,  I  eing  commercial  banks,  they 
naturally  use  their  money  for  the  direct  benefit  of  their  commercial  customers.  I  have 
the  honor  to  preside  over  the  largest  bank  outside  of  New  York  City.  We  carry  as  an 
investment  a  very  small  amount  of  such  bonds.  When  the  recent  currency  stringency 
struck  us,  we  took  out  $3,000,000  of  additional  circulation  and  received  on  deposit 
some  of  the  money  distributed  by  the  Government  for  the  benefit  of  the  general  situa- 
tion, but,  as  shown  in  our  statement,  we  had  to  borrow  nearly  all  the  bonds  used  by  us 
for  that  purpose.  _ 

Other  banks  did  likewise,  as  this  was  the  only  basis  on  which  we  could  afford  to 
use  them.  It  cost  us  an  average  of  2  per  cent  to  borrow  them.  This  is  what  the 
national  banks  would  invariably  have  to  do  before  they  could  avail  themselves  of 
such  a  currency,  and  it  would  add  to  the  expense  of  the  circulation  this  additional 
2  per  cent,  making  its  use  cost  9  per  cent. 

In  a  money  stringency,  with  its  shattering  of  public  confidence  and  curtailment  of 
credit,  in  what  condition  would  the  banks  be  to  help  their  customers  if  they  them- 
selves are  obliged  to  borrow  currency  at  9  per  cent?  They  might  do  something  to  help 
speculation  in  Wall  street,  where  alone  money  reaches  such  exorbitant  rates;  they 
could  do  nothing  for  the  support  of  their  commercial  customers. 

The  principle  of  the  proposed  legislation  is  directly  the  rcA^erse  of  what  it  should 
be.  Something  should  be  done  to  avoid  emergencies  and  to  enable  banks  to  tide 
their  customers  over  periods  of  depression.  This  can  not  be  done  by  issuing  emer- 
gency currency,  the  very  name  of  which  is  enough  to  breed  a  panic,  nor  by  exorbi- 
tantly taxing  the  banks  in  the  exercise  of  their  legitimate  functions. 

There  are  many  other  matters  in  connection  with  this  currency  question  involving 
economic  principles  which  are  as  immutable  as  the  laws  of  nature  and  which  are 
directly  opposed  to  the  method  of  providing  a  circulating  medium  proposed  in  the 
bill,  but  I  have  not  time  at  present  to  go  into  a  complete  discussion  of  these  questions. 

I  should  like  to  show  that  the  currency  so  issued  is  absolutely  without  the  element 
of  elasticity  in  any  possible  meaning  of  the  word.  No  currency  can  be  elastic  that  is 
issued  to  the  hanks  before  it  is  issued  by  the  V)anks,  as  no  stich  currency  can  possibly 
adjust  itself  in  the  volume  of  its  circulation  to  the  actual  daily  reciuirements  for  it  in 
commerce. 

Elasticity  is  the  daily  adjustment  of  the  volume  of  the  circulatiTig  medium  between 
the  banks  that  issue  it  and  the  public  that  uses  it.  There  can  l)e  no  such  adjustment 
in  connection  with  the  currency  proposed.  The  circulation,  arbitrarily  fixed  in  vol- 
ume, of  a  secured  currency  is  one  ])rincipal  cause  now  of  the  periodical  panics  which 
occur  in  this  coimtry,  and  to  add  such  an  emergency  currency  as  is  proposed,  similarly 
secured,  seems  to  me  to  be  an  operation  not  unlike  the  giving  of  a  drunken  man  full  of 
whisky  a  dose  of  brandy  to  sober  him.  This  illustrates  from  my  point  of  view  just 
what  the  effect  on  the  financial  condition  of  the  country  will  be  l)y  injecting  or  attempt- 
ing to  inject  into  the  currency  a  circulating  medium  such  as  is  ])roposed.  It  would 
aggravate  any  condition  of  emergency  existing  instead  ofc correct iiig  it,  and  the  use  of 
it  would  produce  an  emergency  even  when  none  existed. 

You  also  aSk  me  if  I  am  opposed  to  the  (Toverninent  guaranteeing  bank  deposits 
and  if  1  will  give  you  my  reasons  therefor.  I  am  very  (UH'idedly  opposed  to  such  a 
proposition,  and  my  reason  is  that  if  the  (Jlovenuiient  is  going  to  guarantee  the  deposits 
of  all  hanks  it  completely  eliminates  the  necessity  of  the  public  discriminating  between 
one  hank  and  another.  The  old-estahliBlied  l)ank  witli  a  record  of  many  years  of  con- 
servative management  and  accunuilated  .strength  would  become  just  the  .same  in  the 
eyes  of  the  public  as  a  hank  in  the  hands  of  speculators  or  incompetent  or  dishonest 
managers. 


CURRENCY  LEGISLATION.  138 

•  Ultimately  the  banks  lioue.stly  maiia.2;ed  would  have  to  pay  for  the  escapades  of  the 
dishonestly  managed  banks,  and  there  would  be  no  merit  in  excelling  in  conservatism 
or  ability  in  management.  It  would  bo  introducing  into  the  banking  business  of  the 
country  the  grossest  error  that  now  exists  in  connection  with  labor  unions.  It  would 
reduce  all  bankers  to  the  same  level,  and  there  would  be  absolutely  no  reason  why 
anyone  should  not  drop  into  the  lirst  bank  he  came  to  to  deposit  his  money. 

The  Government  being  responsible  for  the  deposits  puts  all  on  an  equality  and  makes 
all  equally  good.  Besides  this,  I  think  it  would  be  practically  socialism  for  the  Gov- 
ernment to  undertake  the  guaranteeing  of  the  enormous  deposits  in  the  banks.  The 
stockholders  of  the  banks  supply  the  capital  and  under  the  law  are  liable  for  double 
the  amount  of  the  capital  subscribed.  They  have  been  accustomed  to  get  for  supply- 
ing this  guaranty  to  depositors  all  the  profits  that  can  be  made  in  the  business. 

Why  the  Government  should  similarly  guarantee  deposits  even  if  the  banks  are 
taxed  for  it,  without  getting  the  profits  in  the  business,  I  gan  not  see.  If  the  Govern- 
ment is  going  into  the  banking  business  to  the  extent  of  guaranteeing  all  the  deposits, 
it  had  better  go  into  it  direct  and  make  all  the  profits  that  can  be  made  out  of  it. 

I  have  had  to  hurriedly  dictate  these  opinions,  and  they  are  probably  not  as  clearly 
or  as  well  expressed  as  I  would  like  to  express  them  had  I  more  time  at  my  disposal, 
but  I  think  they  will  indicate  to  you  my  conclusions  and  to  some  extent  at  least  the 
reasoning  which  has  led  me  to  them. 

The  Acting  Chairman.  I  would  like  to  say  that  the  committee 
has  been  very  much  pleased  with  the  manner  in  which  each  question 
has  been  promptly  and  squarely  answered.  You  have  not  dodged 
anything,  whether  it  came  hard  or  easy. 

Mr.  Hamilton.  I  wish  to  express  my  thanks  to  the  committee  for 
the  courtesy  and  patience  you  have  shown;  and  I  wish  to  add  this 
thought  that  has  just  occurred  to  me,  in  further  support  of  our  meas- 
ure. That  is,  that  the  issuing  of  the  clearing-house  certificates  by 
the  different  commercial  centers  has  shown  the  value  of  the  assets  of 
those  institutions;  and  while  they  have  been  issued  with  question- 
able authority,  yet  it  is  shown  that  such  commercial  assets  are  good 
security  for  a  credit  note  issued. 

Mr.  Hayes.  It  shows  that  the  people  there  so  regard  them. 

Mr.  Hamilton.  Yes;  and  the  people  so  regard  them  m  time  of 
emergency. 

(The  committee  thereupon  adjourned  subject  to  the  call  of  the 
chairman.) 


Committee  ox  Banking  and  Currency, 

House  of  Representatives, 

Tuesday  J  Fehruary  4,  1908. 

The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Charles  N.  Fowler 
(chairman)  in  the  chair. 

The  Chairman.  Gentlemen,  Mr.  Cow])erthwait,  of  New  York,  has 
come  down  here  to  be  heard,  and  we  will  now  proceed,  if  there  are  no 
objections. 

STATEMENT  OF  MR.  J.  HOWARD  COWPERTHWAIT,  OF  154  WEST 
EIGHTY-SIXTH  STREET,  NEW  YORK  CITY,  N.  Y. 

Mr.  CowPERTHWAiT.  Mr.  Chairman,  do  yon  wish  me  to  proceed  in 
my  own  way,  or  do  you  wish  to  ask  me  questions? 

The  Chairman.  The  time  is  yours.  Proceed  and  tell  us  what  you 
think  we  ought  to  know. 

Mr.  CowPERTHWAiT.  I  would  rather  not  put  it  that  way.  I  think 
perhaps  3'ou  know  more  than  I  do  about  the  subject.  I  would  like  to 
state,  gentlemen,  before  beginning,  that  I  have  alwa3^s  been  in  active 
business  in  New  York  City  and  entirely  outside  of  pohtics  and  outside 
of  banking,  and  all  that  I  know  about  this  subject  is  what  I  have 
studied  during  my  whole  life  and  in  carrying  on  rather  a  large  business. 

Mr.  McKiNNEY.  What  line  of  business  are  you  in? 

Mr.  CowPERTHWAiT.  The  retail  furniture  business. 

Mr.  Gillespie.  What  is  the  extent  of  your  business  a  year? 

Mr.  CowPERTHWAiT.  About  a  million  dollars.  The  firm  is  Cow- 
perthwait   &   Sons. 

I  think  there  is  one  important  fact  to  consider,  and  that  is  that  ever 
since  we  have  had  this  bank-note  system,  for  more  than  forty  years, 
we  have  always  gotten  out  of  difficulty  b}'  the  use  of  clearing-house 
certificates  and  clearing-house  scrip.  There  is  no  case  that  I  know 
of  any  panic  in  this  country  since  this  banking  system  came  into  use 
but  we  have  found  that  way  out  of  the  difficulty,  and  in  all  that  time, 
so  far  as  I  know,  none  of  this  scrip  or  none  of  these  certificates  have 
ever  been  the  occasion  of  the  loss  of  a  dollar  to  anybody;  and  always 
when  this  money  has  been  issued — this  substitute  for  money,  or  what- 
ever you  might  call  it — it  has  been  redeemed  within  a  very  short  time, 
and  there  has  never  been  any  disposition  on  the  ])art  of  banks  that 
have  put  it  out  to  keej)  it  out.  It  has  been  absolutely  elastic.  It 
came  into  being  when  it  was  needed  and  went  out  of  use  just  as  soon 
as  the  need  for  it  had  gone  })y.  Now,  I  argue  from  that  that  clearing- 
house scrip  and  clearing-house  certihcates  are  the  natural  cure  for  a 
panic,  imder  our  present  system,  because  they  have  worked  so  well 
during  these  forty-odd  years,  and  I  claim,  reasoning  from  that,  it  is 
proper  to  say  that  by  a  further  use  of  this  sort  of  money,  not  guaran- 
teed by  the  Government,  but  backed  up  by  some  legislation,  some 
very  slight  acknowledgment  on  the  part  of  the  Government  that  that 
is  a  good  .sort  of  substitute  foi'  money,  panics  could  be  avoided. 
134 


CUERENCY   LEGISLATION.  135 

I  do  not  think  that  you  can  avoid  the  great  periods  of  depression 
that  naturally  follow  the  great  periods  of  exaltation,  as  you  might 
say.  I  think  when  prices  are  very  high  and  speculation  is  rampant, 
and  business  very  good,  when  we  hiixe  what  we  know  as  a  period  of 
great  prosperity,  in  that  period  j^ou  sow  the  seeds  of  adversity;  and  as 
one  extreme  succeeds  the  other,  as  a  jnatter  of  course,  when  we  have  a 
period  of  adversity  and  everj^body  is  economical,  you  then  sow  the 
seeds  for  a  new  period  of  prosperity;  and  I  believe  that  that  will  go  on 
just  as  long  as  human  nature  is  as  it  is,  and  unless  you  can  change 
luiman  nature  you  will  be  unable  to  change  that  great  difference 
between  the  period  of  high  i)rices  and  great  prosperity  antl  the  period 
of  adversit}'',  one  succeeding  the  otlier  and  one  causing  the  other,  you 
may  say,  because  when  people  are  making  money  easily  they  then 
invest  easily,  and  these  people  like  Morse  or  Ryan  or  Ilarriman,  or 
any  such  person,  can  easily  float  his  securities,  and  the  higher  the 
state  of  prosperity  the  more  he  can  float;  and  then  you  reach  the 
period  when  something  happens  like  the  failure  of  the  Knickerbocker 
Trust  Company  in  New  York,  some  little  thing  after  you  have 
reached  the  highest  point  happens,  and  people  begin  to  think,  and 
then  you  are  in  a  panic  the  first  thing  you  know.  Then  after  that  jou 
have  a  long  period  of  depression  and  economy,  building  up  for  another 
period  of  prosperity,  in  the  natural  course  of  events. 

It  seems  to  me  that  the  Government  should  recognize  not  alone  the 
clearing  house  of  New  York,  but  every  clearing  house  throughout  the 
country.  If  the  Government  could  give  some  slight  recognition  to 
these  great  institutions,  I  think  that  then  just  before  a  panic  some 
clearing-house  money,  clearing-house  certificates  or  scrip,  or  whatever 
you  call  it,  would  come  into  use  all  over  the  country,  and  I  think  every 
crop  season  throughout  the  West  and  the  South  it  might  in  due  time 
become  a  matter  of  course  that  these  certificates  would  be  issued. 
For  instance,  when  the  cotton  crop  begins  to  demand  money,  as  I 
believe  it  does  in  July,  if  I  am  well  informed  on  that,  I  should  like  the 
Clearing  House  Association  of  New  Orleans  to  issue  clearing-house 
scrip  to  the  banks  that  form  that  association,  taking  from  eacli  bank 
securities  or  commercial  papej;-  to  the  extent  of,  say,  133 J  per  cent  of 
the  amount  of  scrip  that  they  issue.  I  believe  that  is  the  rate  that 
they  have  generally  gone  by;  that  is,  75  per  cent  of  scrip  issued  on 
100  per  cent  of  securities  at  the  market  value.  I  think  if  that  was 
done  as  a  matter  of  course  everv  year,  within  a  very  short  time  we 
would  have  in  operation  in  this  country  what  would  be  the  counter- 
part of  the  great  central  banks  of  Europe.  I  think  it  would  be  almost 
exactly  that,  a  rediscounting  custom  in  periods  of  tight  money. 

People  claim  that  tlijs  clearing-house  money  and  scrip  is  no  good 
in  domestic  exchange.  That  is  one  wa}'  to  put  it,  but  you  can  say 
that  money  issued  by  the  Bank  of  France  or  money  issued  by  the 
Bank  of  Germany  is  no  good  for  exchange  between  those  two  coun- 
tries, and  that  is  so;  but  it  is  })erfectly  good  within  the  country,  and 
it  releases  an  immense  amount  of  gold  for  use  in  the  exchanges  be- 
tween the  countries.  So  here,  if  New  York  City  banks  coidd  issue 
clearing-house  scrip  at  the  very  beginning  of  a  panic.  I  think  that 
would  release  an  immense  amount  of  Government  money  which 
would  be  shipped  to  creditor  banks  in  the  interior  for  the  use  of 
domestic  exchange. 


136  CURRENCY  LEGISLATION. 

Mr.  Gillespie.  Who  would  decide,  in  your  opinion,  when  it  was 
necessary  or  proper  to  resort  to  these  clearing-house  certificates  or 
money? 

Mr.  CowPERTHWAiT.  I  would  first  expect  clearing-house  associ- 
ations to  be  reorganized.  You  know  that  now  they  have  a  very 
loose  organization.  The  Clearing  House  Association  of  New  York 
City  is  not  even  incorporated. 

The  Chairman.  None  of  them  are  over  the  country. 

Mr.  CowPERTHWAiT.  I  am  more  familiar  with  the  New  York  Clearing 
House.  Now,  if  instead  of  that  organization  you  had  a  great  clear- 
ance bank,  I  should  say  that  the  board  of  directors  of  that  bank  could 
act  in  a  moment;  there  would  not  be  any  waiting  like  there  was  in 
this  last  panic;  but  I, should  say  that  the  board  of  directors  could 
act  in  one  moment  and  issue  clearing-house  scrip,  and  the  manner  of 
issuing  it  makes  it  absolutely  safe.  As  I  have  told  3'ou,  there  has 
never  been  a  dollar  lost  on  an}"  of  this  scrip  or  on  any  of  these  cer- 
tificates, and  I  think  it  is  perfectly  proper  to  leave  to  an  association, 
to  a  great  bank,  the  right  to  issue,  the  Government  limiting  the  quan- 
tity; to  give  the  right  to  the  bank  to  do  that  whenever  it  sees  fit, 
because  that  great  bank  takes  the  risk.  The  Government  does  not 
take  any  risk;  the  bank  takes  the  risk.  There  was  no  scrip  issued 
in  New  York,  as  there  was  in  the  West.  Suppose  that  a  bank  in  New 
York  applies  for  clearing-house  certificates,  the  clearing-house  asso- 
ciation issues  them,  and  it  takes  the  securities  of  this  bank,  and  then 
it  assumes  that  risk.  It  becomes  responsible.  It  has  to  redeem 
these  certificates.  I  think  where  an  association  takes  the  risk  itself 
of  issuing  this  money  to  its  member  banks,  that  it  is  quite  proper 
that  it  should  do  it  when  it  sees  fit.  Then  you  catch  the  panic  at 
the  very  instant  it  begins,  not  waiting  until  the  patient  is  in  convul- 
sions.    In  a  panic  there  is  no  time  to  communicate  with  Washington. 

Mr.  Gillespie.  That  would  not  be  an  emergency  currency,  but 
normal  ? 

Mr.  CowPERTHWAiT.  It  would  be  a  currency; it  would  be  a  supple- 
mental currency.  I  would  not  disturb  our  banking  system,  because 
I  do  not  believe  you  can  do  that  for  a  long  time  to  come,  and  I  do  not 
beheve  it  is  necessary;  but  I  would  have  this  as  a  supplemental  cur- 
rency to  be  issued  anywhere  throughout  the  country,  limiting  the 
amount  to  the  locality,  and  suitable  to  the  responsibility,  and  the 
Government  overseeing  it  to  the  extent  that  there  should  be  no 
fraud  committed,  and  that  there  should  be  sufficient  security  back 
of  the  currency.  My  pet  idea  is  to  pro\dde  money  for  moving  crops. 
I  live  in  New  York  City,  but  I  think  the  most  important  considera- 
tion in  any  currency  measure  is  the  facility  of  mo\dng  the  crops. 
That  is  a  great  thing  to  consider.  It  is  not  the  prices  of  securities 
in  New  York;  it  is  not  to  help  speculators  there, but  that  the  farmers 
and  the  planters  sliould  be  able  to  move  their  crops  as  soon  as  thej' 
are  gathered  and  to  obtain  money  or  what  ^v^.ll  answer  for  money  for 
the  time  being.  The  idea  I  want  to  convey  is  the  necessity  for  the 
recognition  of  clearing-house  associations,  and  helping  them  to 
develop  into  great  clearance  banks,  some  recognition  which  would 
mean  that  they  would  issue  money  whenever  it  is  needed  to  a  very 
limited  extent. 

Mr.  McKiNNEV.  The  (Icaring-house  jiioney  that  would  be  issued 
Would  neces.sarilv  be  larirelv  a  lofal  monev.  would  it  not,  for  local  use? 


CURRENCY   LEGISLATION.  187 

Mr.  CowPERTiiWArr.  I  was  out  in  Kansas  City  a  wliile  a<z;()  and  I 
talked  with  tlie  nontlemen  wlio  ran  the  loan  committee  of  the  Clearing 
House  Association  of  Kansas  City.  They  told  me  that  a  <!:ood  deal 
of  the  scrip  that  was  issued  found  its  way  100  or  200  miles  off  from 
Kansas  City,  and  it  was  even  hoarded,  to  a  certain  extent.  This  is 
a  curious  thins;,  hecause  it  did  not  j)retend  to  be  anythin":  but  a  sub- 
stitute for  money;  but  I  should  say  that  the  money  issued  by  a  clear- 
ance bank  takino;  the  place  of  the  clearing-house  association,  issued 
in  New  York,  would  find  its  way  all  over  the.  country  because  of  the 
streni:::th  behind  it. 

JMr.  McKiNXEY.  What  I  was  i2;oinii-  to  follow  that  up  with  was  this: 
In  the  case  of  New  York,  su[)])ose  it  was  necessary  to  issue  a  laro;e 
amount  of  clearin2;-house  certificates;  what  would  become  of  the  out- 
side banks  dependini!;  upon  New  York  for  their  currency,  which  they 
woidd  have  deposited  to  their  credit  in  New  Y'ork  city?  How  would 
they  be  relieved  by  that  sort  of  a  situation? 

Mr.  CowPERTHWAiT.  Ncw  Y'orkis  the  financial  center  of  tlie  country, 
and  there  is  an  immense  amount  of  money  or  currency  in  New  York 
that  belongs  to  banks  all  over  the  country.  That  is,  for  nine  months 
in  the  jear — or  for  eight  months  in  the  3^ear,  to  be  more  accurate — 
beginning  ^^dth  the  1st  of  January  the  money  flows  from  all  over  the 
country  to  New  York  City,  and  that  mone}^  belongs  to  the  banks 
which  deposit  it  there.  Now,  I  should  say  that  when  there  comes  a 
bad  period,,  if  the  banks  of  New  Y'ork  City  issued  clearing-house 
scrip  every  retailer  of  merchandise  in  New  -Y'ork  City  would  ad- 
vertise at  once  that  that  scrip  was  perfectly  acceptable  to  him  in 
payment  of  everything  that  was  owing  to  him.  As  a  retail  dealer,  I 
know  that  I  would  advertise,  on  the  very  day  that  the  banks  should 
say  that  they  were  going  to  do  that,  that  it  was  perfectly  acceptable 
to  me.  If  that  was  done  that  scrip  could  be  used  in  pay  rolls,  and 
then  these  creditors  back  in  the  interior  could  have  the  money  they 
are  entitled  to  that  is  on  deposit  in  New  Y'ork.  But  I  should  not 
leave  it  wholly  that  way,  because  I  should  permit  these  associations 
throughout  tlie  country  to  issue  it  themselves.  Where  a  crop  is 
gathered  and  marketed  I  do  not  see  wdiy  that  section  of  the  coun- 
try should  not  itself  have  some  chance  to  finance  its  own  crop.  It 
seems  to  me  that  is  quite  a  proper  thing  to  do.  I  think  the  people 
who  gather  the  cotton  crop  ought  to  go  to  their  nearest  center  and 
get  money  for  the  time  being,  if  they  are  satisfied  to  take  that  sort  of 
money.  I  would  not  make  it  compulsory  at  all.  I  do  not  think  they 
ought  to  be  depending  on  New  York  or  Washington.  After  they  have 
gone  to  the  trouble  of  raising  the  croj)  and  getting  it  ready  for  the 
market,  if  they  are  willing  to  take  this  sort  of  money  in  payment  for 
it,  I  think  they  ought  to  be  entitled  to  have  it. 

Mr,  Weeks.  Y'ou  w^ould  be  in  favor  of  dividing  the  country  into 
districts,  would  you  ? 

Mr.  CowPERTHWAiT.  Only  as  it  is  divided  now.  Y'ou  know  there 
are  a  great  many  clearing-house  associations  throughout  the  country. 

Mr.  Weeks.  You  mean  you  would  allow  the  issuing  of  this  circu- 
lation to  the  clearing  houses  as  they  are  now  organized? 

Mr.  CowPERTHWAiT.  I  would  not  care  about  that.  I  have  not 
gone  into  the  details. 

Mr.  Weeks.  Do  you  not  think  that  would  be  an  unjust  prejudice 
against  a  bank  that  does  not  belong  to  the  clearing  house? 

Mr.  CowPERTHWAiT.  They  can  join  the  clearing  house. 


138  CURRENCY   LEGISLATION. 

Mr.  Weeks.  "\Aliy  should  not  ever}^  bank  have  this  right,  if  any 
bank  is  to  have  the  privilege  of  issuing  this  circulation? 

Mr.  CoAVPERTHAVAiT.  I  think  if  you  allow  any  bank  to  do  it,  it 
becomes  then  nothing  but  inflation. 

Mr.  Weeks.  You  misunderstand  me;  I  mean  to  have  every  bank 
belong  to  a  clearing  house.  Take  the  State  of  Texas,  if  you  like; 
every  national  bank  in  Texas  belongs  to  the  clearing  house  of  the 
district  in  which  it  is.  Is  there  any  reason  wlw  a  bank  in  Fort  Worth 
should  be  allowed  to  issue  a  circulation  that  a  bank  in  some  small 
place  is  not  permitted  to  issue? 

Mr.  Cowperthwait.  Well,  I  think  the  nation  is  entitled  to  a 
safeguard. 

^Ir.  Weeks.  You  would  have  all  the  banks  in  Texas  behind  that 
circulation  ? 

]Mr.  Cowperthwait.  I  would  not  have  this  mone^^  issued  simply  by 
a  bank.  I  would  have  the  bank  apply  to  its  clearing-house  associa- 
tion. 

Mr.  Weeks.  Why  not  make  that  general? 

Mr.  Cowperthwait.  Wherever  there  is  a  clearing-house  associa- 
tion I  should. 

Mr.  Gillespie.  Take  this  clearing-house  association  at  Fort  Worth, 
Tex.  The  town  of  Weatherford  is  30  miles  from  there,  with  just  a  few 
banks,  and  they  have  no  clearing-house  association,  though  it  is  a 
good-sized,  thrifty  business  city.  How  would  3^011  treat  the  banks  at 
Weatherford?  Would  you  require  them  to  go  in  the  Fort  Worth 
association,  or  to  form  one  of  their  own,  or  to  stay  out? 

Mr.  Cowperthwait.  I  should  permit  them  to  form  one  of  their  own 
or  go  into  the  Fort  Worth  association,  or  let  them  do  without  this  help. 
I  should  not  allow  a  single  bank  by  itself  to  be  able  to  inflate  the 
currency.     I  should  certainly  be  opposed  to  that. 

The  Chairman.  How  can  you  inflate  the  currency,  any  more  than 
you  can  inflate  the  amount  of  checks  or  drafts,  if  the  currency  can  not 
be  held  as  a  reserve,  and  if  there  is  a  macliinery  for  its  return? 

Mr.  Cowperthwait.  If  you  compel  its  return,  of  course  it  will  not. 

The  Chairman.  Not  compel  at  all,  but  permit  its  return.  Suppose 
there  was  no  provision  for  the  use  of  a  bank  note  in  that  way,  it  would 
come  back  as  promptly  as  the  check  or  a  draft,  and  then  how  can  you 
inflate  the  currency? 

Mr.  Cowperthwait.  I  do  not  believe  I  know. 

The  Chairman.  You  know  that  you  can  not,  do  you  not? 

Mr.  Cowperthwait.   I  am  not  prepared  to  go  into  that. 

The  Chairman.  Did  you  ever  study  the  New  England  system,  the 
Suffolk  system? 

Mr.  Cowperthwait.  Aery  Httle. 

The  Chairman.  You  know  the  system  of  the  Bank  of  France, 
which  in  some  weeks  contracts  and  expands  seventy-five  millions  of 
depo.sits  that  have  gone  right  into  the  currency.  Now,  why  did  it  go 
into  the  currency?  Because  people  wanted  the  currency  rather  than 
deposits  sid>ject  to  checks.  Wliat  is  inflation?  It  is  basing  one 
cre(Ht  upon  another,  and  if  it  is  based  upon  the  metal,  the  metal  of 
the  country  is  gold,  and  if  you  have  nothing  in  reserve  but  gold,  it  does 
not  ]iiake  any  difl"erence  liow  many  credits  you  have  out  nor  what 
the  form  of  tho.se  (Tedits  is.  You  can  only  get  inflation — I  am 
speaking  of  bank  crecHts  now,  and  not  of  the  price  of  goods — by  bas- 
ing one  credit  on  another  credit;  is  not  that  right? 


CUERENCY    LEGISLATION.  189 

Mr.  CowpERTinvAiT.  You  ^ei  ])ank  inflation  in  tliat  way.  But  we 
liave  had  such  a  thing  as  inconvertible  paper  money;  for  fourteen 
years  after  the  civil  war  we  had  paper  money,  which  v;as  not  con- 
vertible into  gold. 

The  Chairman.  What  was  that?  The  United  States  money; 
green})acks  and  United  States  notes. 

Mr.  CowPERTiiWAiT.  You  had  the  whole  power  of  the  Government 
behind  it,  but  it  was  not  suHicient  to  bring  it  to  a  par  with  gold. 

The  Chairman.  Yes,  that  is  true;  the  best  currency  that  the  world 
has  ever  had  was  worth  only  75  cents  on  the  dollar,  simply  because  it 
was  not  based  on  gold. 

Mr.  CowpERTHWAiT.  I  sliould  say  that  you  can  make  the  currency 
absolutely  safe;  by  your  bill  it  seems  to  me  it  would  be  safe.  It  would 
remain  on  a  par  with  gold.  But  I  do  not  think  it  w^ould  be  sufRciently 
elastic  for  this  country. 

Mr.  Fowler.  Most  people  think  it  would  be  too  elastic,  but  I 
think  it  would  be  just  elastic  enough.  In  other  words,  I  think  it 
would  go  and  come  precisely  in  accordance  with  the  requirements  of 
trade.     I  know  it;  I  do  not  think  so  at  all;  I  know  it. 

Mr.  CowPERTHWAiT.  I  do  not  believe,  Mr.  Fowder,  that  I  am  suf- 
ficiently familiar  with  a  point  like  that  to  state  how  it  would  operate 
under  your  bill.  If  you  want  me  to,  I  will  branch  off  to  that  subject 
and  I  can  tell  you  the  objection  that  I  have  to  your  bill. 

The  Chairman.  Let  us  not  get  away  from  the  subject.  We  are 
talking  about  credits.  The  question  is  how  can  you  expand  or  con- 
tract cretlits,  or  how  it  can  result  in  inflation  through  a  bank  taking 
deposits  if  based  on  gold — that  is,  how  they  can  inflate  by  basing 
credits  or  bank  notes  on  gold.     That  is  w^hat  I  w^ant  to  find  out. 

Mr.  CowPERTHWAiT.  I  think  that  it  w^ould  depend  on  the  percent- 
age of  the  gold. 

The  Chairman.  Of  course  our  conversation  is  based  on  a  right 
reserve,  such  as  the  national  banks  have  to-day. 

Mr.  COWPERTHWAIT.  I  do  not  think  they  have  a  right  reserve.  I 
do  not  think  they  have  in  New  York  City. 

The  Chairman.  You  do  not  think  that  25  per  cent  is  enough  for 
New  York  City « 

Mr.  CowPERTHWAiT.  No,  sir;  T  do  not  think  25  per  cent  is  enough 
for  New  York  City. 

The  Chairman.  Do  not  let  us  have  a  collateral  question  come  into 
it.  Assume  that  the  right  reserves  are  in  gold,  and  there  are  the 
right  issues,  how  can  you  have  inflation? 

Mr.  CowPERTHWAiT.  You  can  not. 

The  Chairman.  Then  let  us  make  a  distinction  here.  When  you 
have  reserves  in  gold,  you  never  can  have  inflation.  You  can  have 
expansion,  but  not  inflation.  There  is  a  very  distinct  difference 
between  expansion  and  inflation.  If  you  continue  to  expand  your 
bank  credits  and  the  reserve  stands  still,  that  is  expansion  but  not 
inflation.  You  only  get  inflation  when  you  })ase  one  credit  on 
another  credit.  The  other  is  ex]iansion  pure  and  simple,  expanding 
credits  and  limiting  your  reserves  to  a  given  quantity  and  not  keeping 
your  reserves  pari  ])assu  in  amount  witii  your  creilits:  that  is  ex]ian- 
sion  and  not  inflation. 

Mr.  CowPERTHWAiT.  I  tliiuk  there  is  no  (piestion  at  all,  from  the 
experience  of  Europe,  that  if  you  have  a  i)roper  reserve  of  gold  you 


140  CURRENCY  LEGISLATION. 

will  have  no  trouble.  I  think  there  is  no  question  about  that, 
because  that  has  been  settled  for  a  hundred  years,  you  might  say. 

The  Chairman.  If  you  have  your  reserves  in  gold  and  a  perfect 
facility  of  transferring  from  a  book  credit  to  currency  you  can  not 
have  inflation. 

Mr.  CowPERTHWAiT.  While  this  discussion  is  on  in  the  country  I 
would  like  to  see  something  done  to  get  rid  of  the  prejudice  of  the 
American  people  in  favor  of  only  money  guaranteed  by  the  Govern- 
ment. That  is  a  peculiarly  American  prejudice,  and  it  is  almost  uni- 
versal. I  think  ninety-nine  men  out  of  one  hundred,  if  you  have 
anything  to  say  to  them  about  currency  and  give  them  a  chance  to 
answer  on  that  point,  would  always  say  that  they  want  the  Govern- 
ment behind  the  currency. 

Mr.  James.  Do  they  not  get  that  fi'om  the  Constitution? 

Mr.  CowPERTHWAiT.  Behind  the  paper  currency;  the  Constitution? 

^Ir.  James.  Behind  any  sort  of  currency? 

Mr.  Cowpertiiwait.  I  do  not  know  that.  Well,  there  may  be 
some  law  in  it,  but  I  do  not  think  most  individuals  understand  it 
in  that  way.  Of  course  I  accept  what  you  say,  but  I  think  they 
look  on  it  as  the  stamp  of  the  Government  making  it  good.  That 
is  not  true  in  any  other  country. 

Mr.  James.  Do  they  not  look  on  the  right  to  coin  money  as  a  gov- 
ernmental function,  like  the  right  to  collect  taxes  or  take  any  other 
governmental  action? 

Mr.  Cowpertiiwait.  It  seems  to  me  that  the  true  function  of  the 
Government  in  regard  to  monev  stops  with  the  coining  of  money. 

Mr.  Gillespie.  I  agree  with  you  on  that. 

Mr.  CowPERTHWAiT.  I  think  that  is  the  practice  that  has  gone  on 
in  Europe,  and  I  think  that  is  the  true  practice. 

Mr.  James.  But  you  disagree  with  the  Democratic  platform  when 
you  do.     The  Constitution  is  above  every  platform. 

Mr.  Gillespie.  I  admit  that. 

Mr.  McKiNNEY.  Did  you  state  in  your  remarks  that  there  was  to  be 
a  limit;  that  the  limit  of  the  issuance  of  clearing-house  certificates 
was  to  be  determined  by  the  clearing-house  itself? 

Mr.  Cowpertiiwait.  I  should  say  that  if  clearing-house  associa- 
tions were  empowered  to  issue  this  sort  of  money — understand  me,  not 
guaranteed  at  all  by  the  Government — nobody  being  obliged  to  take 
it  unless  they  saw  fit,  it  simply  being  a  promise  to  pay  by  a  clearing- 
house association,  that  even  so,  every  clearing-house .  association 
should  be  limited  in  the  amount  of  money  that  it  can  issue,  should  be 
limited  by  thecoml)inetl  capitals  of  the  banks  which  are  in  the  clearing- 
house associati(m.  It  seems  to  inc  to  be  much  more  proper,  for 
instance,  for  a  New  York  City  bank  to  issue  S100,()()0,0()()  of  this  sort 
of  currency  than  for  a  clearing-liouse  association  of  two  or  three 
banks  in  a  far  Western  or  Southern  city  to  issue  $10,000,000.  I  think 
the  issue  ought  to  be  in  proportion  to  the  responsibihty  behind  it.  As 
to  exactly  where  you  woidd  draw  the  line,  you  might  (h'aw  the  line  at 
the  combined  capital  of  the  ])anks  that  formed  the  clearing-house 
association.  "hOu  would  want  enough  responsibility  behind  it  so  that 
there  would  be  no  fraud  committed  on  the  people,  and  if  you  did  not 
limit  it  they  might  succeerl  in  getting  a  very  large  amount  afloat,  and 
that  would  be  a  hardship  on  the  i)eople  of  that  section. 


CURKENCY   LEGISLATION.  141 

Mr.  Weeks.  If  it  had  good  security  behind  it,  would  tliat  be  any 
harm^ 

Mr.  CowPERTiiWAiT.  It  would  be  all  right  if  they  had  the  security 
behind  it;  but  then  people  are  human,  and  it  might  get  afloat,  ancl 
you  might  suppose  there  was  the  security  when  there  was  not.  I 
would  have  it  limited  in  both  ways.  I  should  like  it  absolutely  safe, 
without  a  guarantee  of  the  Government.  Were  you  speaking  about 
money  being  oversupplied,  Mr.  Crawford? 

Mr.  Crawford.  Yes. 

Mr.  CowPERTiiWAiT.  I  was  talking  with  a  merchant  in  New  York 
some  time  ago,  and  possibly  some  one  here  might  have  the  same  views 
that  he  had.  He  was  quite  a  successful  man.  There  are  about 
$346,000,000  of  greenbacks,  I  understand,  in  the  country,  and  that 
whole  amount  stays  in  this  country.  There  is  no  question  cm  that 
point.  I  said  to  him  that  that  does  not  prove  there  are  S34(),000,000 
more  of  money  in  this  country,  and  he  said  he  thought  it  did,  because 
it  was  here.  Then  I  called  his  attention  to  what  I  thought  was  a 
verv'  important  thing,  that  ever  since  those  greenbacks  were  issued 
we  have  been  exporting  gold  and  importing  gold,  settling  balances  of 
exchange  in  that  way,  and  whenever  we  have  had  too  much  money, 
and  the  rate  of  interest  has  been  too  low,  we  have  exported  gold,  and 
w'iienever  the  rate  of  interest  has  been  too  high,  and  there  has  been 
a  shortage  of  gold,  we  have  imported  gold  and  sold  securities,  as 
we  have  been  doing  lately.  I  claim  that  as  a  scientific  fact  the 
$346,000,000  of  greenbacks  increases  the  total  stock  of  money  in  the 
world,  and  that  is  all  it  does;  that  the  amount  of  money  in  the 
United  States  is  increased  bv  this  $346,000,000  simply  bv  the  propor- 
tion of  that  $346,000,000  that  belongs  to  the  United  States  in  the 
ordinary  covirse  of  its  business,  and  I  should  say  that  if  you  should 
take  that  $346,000,000  out  of  existence,  say  during  the  next  ten  years, 
little  })y  little,  whenever  it  came  into  the  hands  of  the  Government, 
after  that  period  had  ])assed  you  would  have  nearly  as  much  money 
as  if  you  did  not  take  it  out  of  existence.  Y^ou  would  export  so 
much  less  gold. 

The  Chairman.  Gold  would  take  its  place? 

Mr.  CowPERTHWAiT.  Yes. 

The  Chairman.  Absolutely  i 

Mr.  CowPERTHWAiT.  Or  something  else  would  take  its  place, 
possibly  national-bank  notes,  possibly  something  else;  but  I  believe 
that  so  long  as  you  stay  on  a  gold  basis  it  is  absolutely  impossible 
to  increase  or  decrease  the  amount  of  money  in  the  country  unless 
you  go  to  extreme  measures.  Y"ou  could,  of  course,  annihilate  a 
large  amount  of  money — wnpe  it  right  out  of  existence.  There  is 
an  old  economic  natural  law,  discovered  by  Sir  Thomas  Gresham, 
and  I  do  not  know  as  I  ought  to  speak  of  such  a  simple  thing  as  that, 
for  it  has  been  known  for  three  hundred  years  and  1  believe  there  is 
no  dispute  that  it  is  an  absolute  law  from  which  nobody  can  get 
away,  that  in  every  country  the  poorer  currency  drives  out  the 
better  currency.  It  has  hai)pened  in  England,  and  everywhere, 
and  the  more  you  issue  the  poorer  currency  the  more  the  better 
currency  goes  out  of  the  country,  because  people  have  to  use  currency 
for  the  debts  they  settle,  and  the  better  money  is  always  demanded 
for  the  foreii^n  debts. 


142  CURRENCY   LEGISLATION. 

The  Chairman.  That  is,  you  have  the  poorer  currency  for  tlie  com- 
mon use,  for  which  the  good  was  used? 

Mr.  CowPERTHWAiT.  Yes. 

The  Chairman.  So  that  it  does  not  follow  that  the  poorer  currency 
will  drive  out  the  better  unless  they  are  both  treated  on  the  same 
basis  ? 

Mr.  CowPEKTHWAiT.  Oh,  yes. 

Mr.  Weems.  It  depends  on  the  difference  l)etween  the  values  of  the 
two  cjirrencies  ( 

Mr.  CowPERTHWAiT.  You  will  pay  your  debts  within  the  country 
with  the  poorer  kind  of  currency. 

The  Chairman.  But  if  you  reduce  your  bank  credits  and  all  your 
reserves  are  held  in  gold,  then  it  will  not  drive  out  the  gold? 

Mr.  CowPERTHWAiT.  No,  sir;  not  if  you  arbitrarily  fix  the  amount 
of  gold.  Of  course  you  can  not  drive  it  out.  If  you  can  arbitrarily 
fix  it,  it  will  not  be  driven  out. 

The  Chairman.  You  can  fix  it  in  the  reserve,  and  if  all  credits  of 
banks  were  based  on  gold,  then  the  banks  would  be  compelled  to  buj'' 
gold,  as  they  did  in  Louisiana  before  the  war,  and  the  State  of  Louisi- 
ana had  more  gold  than  any  State  in  the  United  States  except  New 
York,  simply  because  they  were  compelled  to  buy  gold  to  do  business. 

!Mr.  CowPERTHWAiT.  Yes,  sir.  I  think  in  this  last  panic  the  money 
that  was  issued  by  the  Government  will  have  the  effect  of  driving 
that  much  mone}'  out  of  the  country. 

The  Chairman.  What  do  you  refer  to;  do  you  mean  the  bank-note 
circulation  i 

^Ir.  CowPERTHWAiT.  The}^  sold  the  Panama  Canal  bonds;  you 
know. 

The  Chairman.  You  mean  the  bank  notes  that  were  based  on 
them  ? 

^Ir.  CowPERTHWAiT.    YcS. 

The  Chairman.  Only  so  far  as  those  bank  notes  would  be  used  for 
reserves.     To  that  extent,  yes. 

Mr.  CowPERTHW.viT.  Gold  has  begun  to  go  out  already. 

The  Chairman.  Certainly. 

Mr.  COWPERTHWAIT.  And  I  think  more  will  go  out  because  of  that 
issue  of  money  than  would  otherwise  be  the  case. 

The  Chairman.  Certainly,  because  they  use  the  bank  notes  for 
reserves;  they  are  constantly  putting  bank  notes  into  the  reserves 
of  the  country  and  undermining  the  credit  of  the  country. 

Mr.  COWPERTHWAIT.  I  should  think  that  the  gold  would  leave  the 
country  unless  the  Government  should  absorb  it  and  pile  it  up,  and 
I  do  not  sii|)pose  it  can  do  that  very  readily  at  present. 

Mr.  McKiNNEY.  It  is  generally  believed  throughout  the  country 
that  the  issuance  of  clearing-house  certificates  at  any  center  comes 
about  as  a  last  resort  on  the  part  of  the  banks  of  that  center  on 
account  of  depleted  reserves,  and  on  account  of  its  being  an  abso- 
lute necessity  to  keep  the  banks  (>])on. 

Mr.  CowPERTHWAiT.  'i'es. 

Mr.  McKiNNEV.  That  issue  is  generally  deprecated  all  over  the 
country;  and  under  your  proposal,  if  you  adopt  that  as  a  systemand 
the  banks  have  a  right  at  any  time  when  the  reserves  are  too  low 
to  issue  such  certificates,  would  not  that  very  system,  popularized 


CUBEENCY   LEGISLATION.  148 

by  your  proposal,  tend  to  careless  banking  on  the  part  of  the  members 
of  a  clearin2;  house?  It  would  make  no  particular  did'erence  to  them, 
because  they  would  say,  "Suppose  our  reserves  do  get  down  too  low, 
we  can  issue  certificates." 

Mr.  CowPERTiiWAiT.  In  my  proposal  in  the  pamphlet  I  issued  I 
put  a  heavy  tax  on  this  clearing-house  scrip  and  these  clearing-house 
certificates,  and  I  put  it  in  this  way,  that  I  thought  the  second  half 
of  the  year,  which  was  the  crop-gathering  season,  when  the  country 
needs  more  money  than  it  does  in  the  first  half,  unless  you  are  using 
money  for  speculation,  when  the  country  needs  more  for  legitimate 
business,  I  should  say  then  that  this  scrip  might  be  issued  in  the  way 
I  propose,  and  it  should  be  limited.  That  would  cover  a  part  of 
your  question,  limiting  the  amount.  I  should  say  during  the  second 
naif  of  the  year  the  clearing-house  associations  should  be  permitted 
to  issue  this  scrip  without  any  tax,  but  beginning  on  the  1st  of  January 
I  would  have  the  Government  tax  it  even  to  the  extent  of  1  per  cent 
a  month  for  all  that  was  then  outstanding  and  the  redemption  of 
which  was  unprovided  for.  The  Government  inspector  should  have 
the  amounts,  and  know  every  month  what  was  issued  and  what  banks 
issued  it.  The  inspector  should  report  that  such  and  such  a  bank 
had  had  so  much  of  this  scrip  issued  and  no  reserve  provided  to  meet 
it;  consequently  that  bank  would  have  to  redeem  it  at  once  or  pay 
the  tax,  and  in  that  way  you  would  have  elasticity. 

Mr.  Weems.  Do  you  think  these  clearing-house  certificates  have 
ever  done  any  harm? 

Mr.  CowPBRTHWAiT.  No ;  I  do  not  think  they  have  ever  done  any 
harm. 

Mr.  Weems.  Then  why  would  you  tax  them? 

Mr.  Cowpertiiwait.  Issuing  money  is  a  sort  of  a  prerogative  of 
the  Government. 

Mr.  Weems.  They  have  always  been  promptly  retired? 

Mr.  Cowperthwait.  Yes. 

Mr.  Weems.  Under  the  operation  of  what  influences  have  they 
been  retired  ? 

Mr.  Cowperthwait.  I  think  as  a  supplemental  currency.  You 
want  money  to  move  the  crops.  If  you  issue  money  to  n\ove  the 
crops  and  then  it  stays  in  circulation,  it  helps  to  advance  prices  and 
to  encourage  speculation  and  to  create  overconfidence,  and  you  have 
nothing  to  issue  when  the  next  period  of  crop  moving  comes  around. 
I  think  it  ought  to  be  a  supplemental  currency  issued  in  the  second 
half  of  each  year  when  you  are  moving  crops,  and  it  ought  to  ])e  issued 
right  where  the  crops  are  moved,  and  then  1  think  it  ouglit  to  be 
promptly  put  out  of  existence. 

The  Chairman.  It  has  gone  out  of  existence,  has  it  not  i 

Mr.  Weems.  It  promptly  goes  out  of  existence. 

Mr.  Cowperthwait.  Yes;  it  has  done  so  thus  far.  but  I  would 
make  very  sure  of  it. 

Mr.  Weems.  It  always  has  done  so,  has  it  not  ? 

Mr.  Cowperthwait.  Yes. 

The  Chairman.  How  do  you  know  it  will  not  ( 

Mr.  Cowperthwait.  I  do  not. 

The  Chairman.  Would  you  not  rather  trust  to  what  had  happened 
than  to  what  you  think  ought  to  happen^ 


144  CURRENCY   LEGISLATION. 

Mr.  CowpERTHWAiT.  Xo :  because  what  has  been  done  so  far  has 
been  somewhat  in  violation  of  law.  That  is,  it  is  supposed  to  be  in 
violation  of  law;  but  it  has  been  such  an  absolute  necessity  that  peo- 
ple have  been  willing  to  have  a  bank  issue  it  rather  than  to  have  it  fail. 

Mr.   Gillespie.  Did  not   the  in   1893   give   an  opinion 

that  these  clearing-house  certificates  were  not  in  violation  of  law? 

Mr.  CowPERTHWAiT.  I  do  iiot  kuow;  I  am  speaking  of  a  general 
impression.  I  do  not  know  about  the  law.  I  have  talked  with  a 
number  of  bankers  in  New  York  recently,  and  they  talked  as  though 
it  was  in  violation  of  law.  I  have  never  looked  up  the  law,  and  I  am 
not  a  lawyer.  I  supposed  it  was.  But  of  course  if  there  should  be 
a  law  passed  recognizing  them  in  any  way  at  all,  then  there  would 
be  more  of  a  tendency  to  keep  them  out,  and  if  they  stay  out  during 
the  whole  year,  then  you  have  no  elasticity  of  the  currency  from 
them,  if  they  are  going  to  be  used  to  foster  speculation.  I  think  that 
is  a  long  way  off,  when  anything  will  be  done  that  way,  and  it  seems 
to  me  that  the  business  in  hand  now  is  to  defeat  the  Aldrich  bill. 
That  is  the  impression  I  have. 

Mr.  Gillespie.  To  defeat  the  Aldrich  bill? 

Mr.  CowPERTHWAiT.  I  think  so. 

Mr.  Gillespie.  ^ATiat  is  your  criticism  of  the  Fowler  bill?  "\ATiat 
is  3"our  main  objection  to  it? 

Mr.  CowPERTHWAiT.  The  guaranteeing  of  deposits  in  the  banks 
seems  to  me  to  be  a  fatal  objection  to  it.  Mr.  Fowler  has  tried  to 
convince  me  the  other  way,  but  I  am  afraid  I  still  stay  where  I  was. 
Before  I  came  here  I  talked  with  a  number  of  bank  presidents,  and 
they  agreed  on  that  same  view.  I  held  that  view  before,  and  I  am 
somewhat  fortified  by  what  they  said.  One  of  them  even  went  so 
far  as  to  call  it  a  criminal  idea.     I  do  not  give  you  that  as  my  idea. 

Mr.  McKixxEY.  What  kind  of  an  idea? 

Mr.  CowPERTHWAiT.  He  thought  that  it  was  criminal  for  the 
Government  to  guarantee,  or  that  there  should  be  any  guarant}^  of 
deposits. 

The  Chairman.  A  little  experience  that  I  had  up  in  New  York  on 
Thursday  will  be  relevant  on  this  point.  The  merchants'  associa- 
tion, from  which  I  have  a  communication  here  in  regard  to  another 
bUl,  has  approved  every  section  of  that  bill  with  that  exception,  and 
the  committee  having  it  in  charge  commimicated  with  me,  and  I 
went  before  them,  and  the}'  said  that  they  had  had  the  vice-presi- 
dent of  one  of  the  large  banks  of  New  York  before  them,  and  they 
said  that  he  did  not  seem  to  have  thought  ver}^  much  about  it,  and 
they  wanted  to  talk  with  me  about  it;  and  before  I  had  gotten 
through  with  those  four  men  that  afternoon  I  think  they  were  all  con- 
vinced absolutely,  from  what  they  said  to  me,  because  the  chairman 
called  me  up  the  next  day  and  virtually  said  that  they  had  agreed 
that  I  was  absolutely  right  in  my  contention,  and  that  this  matter 
of  a  few  big  bankers  opposing  the  thing  was  based  simply  on  the 
fact  that  they  were  not  going  to  have  the  advantage  of  twenty-five 
years  of  ])restige,  and  tlie  advantage  that  they  thought  they  had 
because  of  large  capital,  and  for  certain  other  superficial  reasons; 
but  they  were  convinced  that  J  was  right  just  as  1  pointed  out  to 
them  there,  and  this  man  told  me  the  next  day  that  1  was  ab.solutely 
right  in  ni}^  contention.  The  point  I  want  to  make,  therefore,  is 
that  the  bankers  that  had  come  to  them  stated  that  they  really  did  not 
know  anything  about  it.  but  it  was  nn  imj)ression  they  had. 


CURRENCY   LEGISLATION.  145 

Mr.  GiLLESPii':.  What  do  you  think  of  the  idea  of  national  banks 
dong  a  savings  bank  and  trust  business? 

Mr.  CowPERTiiWAiT.  I  should  think  that  that  was  wholly  wrong. 

The  Chairman.  What  do  you  think  of  the  trust  companies  doing 
a  national  banking  and  coinnicrcial  business? 

Mr.  CowrERTiiwAiT.  1  think  that  is  wrong  too,  unless  they  keep 
proper  reserves. 

The  Chairman.  Do  you  know  of  a  State  in  the  United  States  where 
the  trust  companies  are  not  doing  everything  that  my  bill  proposes 
they  shall  do? 

Mr.  Cowperthwait.  I  do  not  think  they  will  continue  in  New 
York.  They  have  lost  a  large  share  of  the  deposits;  the  people  have 
caught  onto  it,  and  I  do  not  think  they  will  get  the  deposits  they  had. 

The  Chairman.  \Miy  not,  after  the  people  get  over  this  scare? 
These  companies  offer  3  and  4  per  cent  interest  on  deposits,  and  at 
a  bank  they  could  get  only  2  per  cent,  and  why  will  not  foolish  peo- 
ple deposit  with  them,  just  as  they  did  at  the  Knickerbocker  Trust 
Com])any?  I  understand  they  had  all  the  ladies  from  uptown  doing 
business  there,  simply  because  they  were  paying  them  4  per  cent  on 
their  money. 

Mr.  Cowperthw^^it;  They  can  get  tliai  sort  of  money;  but  they 
have  had  merchants'  deposits,  many  of  them.  One  little  company  in 
which  I  am  a  director  had  an  account  with  one  of  the  trust  companies, 
and  as  soon  as  it  got  into  trouble  we  drew  a  check  on  it  and  got  the 
money  out.  We  did  not  get  on  the  line,  or  anything  like  that:  but 
I  made  up  my  mind  that  they  were  not  entitled  to  any  consideration 
at  all,  because  they  had  not  been  doing  a  proper  trust  company 
business. 

The  Chairman.  There  is  no  trust  company  in  New  York  that  does. 

Mr.  Cowperthwait.  They  will  dq  better  than  they  did  before. 

The  Chairman.  They  will  do  just  the  same.  Under  the  banking 
law  providing  for  15  per  cent  reserve  that  the  committee  reported  up 
there,  that  does  not  prevent  them  from  doing  a  banking  business  in 
every  respect  except  discounting  commercial  paper. 

Mr.  Cowperthw^ait.  I  would  like  to  have  you  tell  me  of  any  other 
State  where  the  trust  companies  have  not  been  doing  the  same  thing? 

The  Chairman.  Have  we  not  got  to  legislate  for  all  the.  country, 
and  not  for  ideal  conceptions? 

Mr.  Cowperthwait.  That  is  verj^  well,  if  you  can;  but  I  have 
hopes  that  by  the  developed  clearing  house  associations 

Mr.  James.  What  is  your  objection  to  a  tax  being  levied  upon  the 
national  banks  by  the  Government  pro  rata  to  the  deposits,  creating 
a  fund  in  the  hands  of  the  Government  as  a  trustee  for  the  purpose 
of  securing  depositors? 

Mr.  Cowperthwait.  I  think  such  a  law  would  lead  to  veiy  unsafe 
banking,  and,  to  give  my  own  experience,  we  have  accounts  in  half 
a  dozen  banks,  and  in  opening  a  bank  account  we  consider  the  safety 
of  the  deposit,  and  we  also  consider  how  much  money  we  can  borrow 
from  the  bank,  we  doing  a  mercantile  business,  and  I  tliinlc  those  t^yo 
questions  come  up  with  everybody  in  opening  an  account — that  is, 
a  merchant's  account.  If  we  had  only  one  thing  to  consider,  as  to 
how  much  money  we  coulil  borrow  from  the  banks,  we  should  natur- 
ally open  accounts  in  the  banks  that  were  willing  to  do  the  most 
risky  sort  of  business.  I  think  that  principle  would  apply  throughout 
the  "country.     I  think  instead  of  the  banlvs  doing  business  in  such 

37381—08 10* 


146  CURRENCY  LEGISLATION. 

a  way  as  to  be  absolutely  safe  they  would  lean  the  other  way;  they 
would  bid  high  for  business. 

The  Chairman.  How  high:  in  what  respect  ? 

Mr.  CowPERTHWAiT.  Not  necessarily  in  bidding  for  deposits.  There 
are  other  ways. 

The  Chairman.  Will  you  explain  to  this  committee  how  it  is  done? 

Mr.  CowPERTHWAiT.  It  is  done  in  a  great  many  cases.  We  go  to  a 
bank  and  we  arrange  with  them  to  keep  an  account,  and  we  agree  to 
keep  certain  deposits  and  they  agree  to  lend  us  a  certain  amount  of 
money. 

The  Chairman.  Three  or  four  times  your  balance,  at  a  certain  time 
of  the  year  ? 

Mr.  CowPERTHWAiT.  Yes,  but  limited  also  to  the  total  amount. 

The  Chairman.  I  understand  a  certain  amount.  Let  me  ask  you 
another  question,  as  a  banker.     What  does  a  banker  base  that  on? 

Mr.  CowPERTHWAiT.  What  does  he  base  it  on? 

The  Chairman.  Yes. 

Mr.  CowPERTHWAiT.  There  is  competition  among  bankers  for  busi- 
ness the  same  as  there  is  among  the  rest  of  us. 

The  Chairman.  What  does  he  base  it  on  ?  When  you  go  in  and  say, 
"1  am  going  to  keep  an  average  balance  of  $10,000,"  he  says,  "At  a 
certain  time  of  the  year  you  want  more  mone}^  than  you  do  at  other 
times,"  and  you  say,  "Yes. "  He  says,  "How  long  do  you  want  it?" 
You  say,  "Two  or  three  or  four  months,"  as  the  case  may  be.  He 
says,  "If  you  want  it  three  months,  I  will  give  you  five  times  as  much 
as  your  average  balance  is.  If  you  want  it  one  month,  I  will  give  you 
ten  times  as  much  as  3^our  average  balance  is."  Now,  under  the 
national-bank  act,  where  you  have  got  to  carry  your  reserves  in  o;old 
and  all  of  your  credits,  whatever  they  are,  are  based  on  gold,  now 
could  any  banker  agree  to  do  an  unsound  thing  for  you  unless  he  had 
deposits  that  were  deposited  by  others  which  he  was  using,  or  as  a 
supplement  to  it,  and  as  a  prerequisite  to  it,  he  must  have  capital 
and  surplus  with  which  to  meet  his  contract  with  you.  How  can  he 
do  an  unsound  business  with  you? 

Mr.  CowPERTHWAiT.  Why  we  have  near  our  store  two  banks, 
and  both  of  them  want  our  business;  they  are  both  anxious  for  it. 
One  bank  will  say,  "We  will  lend  you  $40,000."  That  bank  knows 
very  well  it  is  competing  with  the  bank  on  the  corner  and  the  other 
bank  knows  it,  too.  I  should  sav,  under  vour  law,  that  instead  of 
$40,000  they  would  say  $50,000  or  $60,000.  ' 

The  Chairman.  Where  are  they  going  to  get  the  money  to  loan  you? 

Mr.  COWPERTHWAIT.  Oh,  they  have  got— they  do  not  take  my 
mone}',  necessarily. 

The  Chairman.  This  is  a  t)anker's  question.  I  have  been  in  the 
banking  business  myself.  If  to-day  they  are  bidding,  and  they  say 
they  will  loan  you  $40,000,  do  you  not  think  they  are  looking  around  to 
see  where  they  will  get  the  $40,000?  They  say,  "We  have  got  to 
supply  Mr.  Me  Kinney  and  Mr.  McCreary,  and  all  iiese  fellows,  and 
now  we  will  talk  it  over;  how  much  can  we  let  them  have?  We  can 
let  tliem  have  $40,000."  What  is  that  based  on?  It  is  based  on 
their  average  deposits  in  that  bank,  and  upon  their  resources  in 
profits,  surplus,  and  capital.  If  they  are  straining  every  nerve 
to-day  to  get  your  business,  and  loan  you  $40,000,  they  can  not  loan 
you  $1  more  after  you  have  guaranteed  it,  and  I  challenge  you  to 
point  out  how. 


CURRENCY    LEGISLATION.  147 

Mr.  CowPERTHWAiT.  Tliey  can  not  <i;ot  more  money  to  loan. 

The  Chairman.  Then  how  will  they  loan  it,  if  they  do  not? 

Mr.  CowPERTHWAiT.  They  will  have  a  little  less  reserve  at  times. 

The  Chairman.  It  takes"  away  the  safest  principle  of  banking. 
They  pr6mise  to  loan  mone}^  that  they  never  had. 

Mr.  CowPERTHWAiT.  Yes;  I  think  they  will  take  chances. 

Mr.  James.  As  I  understand  your  contention,  it  is  that  if  you  insure 
deposits  bankers  will  become  reckless  in  the  loaning  of  money.  You 
think  that  w^hen  they  have  their  deposits  secured  they  will  put  their 
own  ])ro])erty,  their  own  investments,  into  danger  of  being  lost  through 
bad  loans  ^ 

The  Chairman.  That  is  it. 

Mr.  COWPERTHWAIT.  I  should  not  put  it  near  so  strong  as  that. 

Mr.  James.  Take  yourself;  are  you  more  solicitous  about  a  debt 
that  a  man  owes  you,  or  about  a  debt  that  he  owes  my  friend  Mr. 
Gillespie;  or  would  you  be  more  solicitous  about  a  debt  that  a  man 
owed  you,  or  about  a  debt  that  you  owed  some  man?  Just  take 
human  nature. 

Mr.  CowPERTHWAiT.  I  do  not  know.  I  think  in  New  York  I  am 
about  as  solicitous  about  how  I  am  going  to  meet  a  debt  as  about 
anything  else. 

The  Chairman.  You  must  be  very  charitable  then. 

Mr.  CowPERTHWAiT.  No;  I  have  got  to  pay  my  debts  in  order  to 
remain  in  business. 

Mr.  James.  Along  this  line  let  me  see  if  I  understand  your  theory 
of  it.  You  know  that  after  you  have  exhausted  the  assets  of  a 
national  bank  and  sold  them  out,  then  you  can  go  onto  the  stock- 
holders for  100  per  cent  in  addition.  You  would  oppose  making 
that  200  per  cent,  would  you  not? 

Mr.  CowPERTHWAiT.  I  do  not  know  that  I  would. 

Mr.  James.  You  would  not? 

Mr. -CowPERTHWAiT.  No;  I  do  not  know  about  that. 

Mr.  James.  That  w^ould  tend  to  make  banking  safe. 

Mr.  CowPERTHWAiT.  I  (lo  not  know;  that  is  a  new  point.  I  do 
not  know  about  that.     I  do  not  know  that  that  point  has  come  up. 

Mr.  James.  I  asked  that  question  of  some  bankers  last  year  from 
New  York,  and  they  said  they  would  oppose  it  because  men  would 
be  fearful  of  going  into  the  business  if  you  made  them  liable  for  200 
per  cent. 

Mr.  CowPERTHWAiT.  1  sliould  tliiiik  they  would.  But  one  objec- 
tion I  have  against  that  proposition.  The  amount  that  is  lost  in  the 
way  of  deposits  is  very  slight,  does  not  come  really  to  an^^^thing  very 
serious,  and  it  does  not  come  to  anything  very  serious  with  the  mer- 
chant. If  a  merchant  is  doing  a  large  business,  the  amount  of  money 
he  has  on  deposit  is  very  small  in  proportion.  In  our  case,  one  of  our 
banks  failed  in  the  panic.  It  did  not  bother  us  any,  as  we  owed  the 
l)ank  more  than  it  owed  us.  That  is  often  the  case.  If  a  merchant 
has  a  large  deposit,  it  is  because  he  borrows  a  great  deal. 

The  Chairman.  I  knew  of  one  merchant  who  had  $46,000  in  a 
bank  at  the  beginning  of  the  difficulty,  and  he  said  that  it  absolutely 
ruined  them  when  that  bank  failed. 

Mr.  CowPERTHWAiT.  You  know  that  the  amount  of  money  that 
is  lost  by  bank  depositors  is  a  very  small  percentage.  The  total 
amount  lost  by  depositors  in  national  banks  is  a  very  insignificant 


148  CUEEENCY   LEGISLATION. 

thing.  You  introduce  a  new  principle  of  guaranteeing  deposits,  and 
if  it  has  any  effect  it  is  to  make  banking  less  safe.  You  do  a  great 
deal  of  harni  for  a  very  little  good. 

The  Chairman.  A  very  Httle  good  ?  A  very  little  good '. 

Mr.  CowPERTHWAiT.  I  tliink  so.  • 

Mr.  James.  Would  it  not  have  the  effect  of  bringing  into  the  use  of 
commerce  tliis  amount  that  is  kept  out  by  people  who  are  afraid  of 
banks? 

The  Chairman.  Would  it  not  stop  hoarding^  The  hoarding  is  esti- 
mated by  the  best  judges  to  amount  to  S250,000,000.  That  would 
contract  the  credits  of  this  country  a  billion  and  a  half  or  two  billions. 

Mr.  CowPERTHWAiT.  I  think  that  it  would  not  have  that  efi'ect. 
The  reason  is  not  that  they  are  afraid  of  the  bank,  but  they  want  the 
money  to  use. 

The  Chairman.  Do  you  mean  to  say  that  if  it  was  an  absolutely 
known  fact  that  there  was  this  reserve  in  the  Treasury  of  the  United 
States,  and  anybody  could  point  to  it  and  say,  '  'What  is  the  use  of 
•your  getting  excited;  there  is  $150,000,000  put  in  the  Treasury  for 
the  express  purpose  of  securing  this,  do  you  mean  to  say  that  it  would 
not  have  any  effect  to  stop  the  drawing  out  that  money  ?" 

Mr.  CowPERTHWAiT.  To  a  certain  extent  it  would  not. 

The  Chairman.  \Miy? 

Mr.  CowPERTHWAiT.  Bccause  the  people  need  mone}^  for  iheir  pay 
rolls,  and  so  forth. 

The  Chairman.  But  if  you  has  e  an  absolute  right  to  convert  your 
book  credits  into  current  credits,  perfectly  free,  j.ust  as  the  Bank  of 
France  does,  then  so  long  as  there  were  any  deposits  subject  to  check 
there  never  could  be  any  shorta^re,  either  in  the  country  where  the 
farmers  are  picking  cotton  or  in  Pittsburg,  where  they  are  producing 
ma<hinery. 

Mr.  CowPERTHWAiT.  If  you  had  this  money  here  and  could  ship  it 
the  same  night. 

The  Chairman.  You  would  not  have  to  ship  it  at  all.  It  is  light  in 
the  bank  where  the  mau  hvcs  who  wants  it.  You  change  it  from  a 
book  credit  into  a  current  credit;  the  reserve  is  the  same,  and  there  is 
no  change-  excej/t  that  one  becomes  a  current  credit  and  the  other  a 
credit  subject  to  check;  tliat  is  ail. 

Mr.  James.  Do  you  not  think  the  effect  of  this  panic  that  i'^  now  on 
the  country  will  be  to  make  people  more  fearful  about  putting 
their  money  in  banks? 

Mr.  CowPERTHWAiT.  I  tliiiik  for  a  very  short  time  it  will.  No;  I 
think  the  average  man  will  say,  ''There  can  not  be  another  panic  for 
ten  years," 

Mr.  James.  Down  in  my  country  the  tobacco  growers  had  sold 
their  tobacco  and  they  had  the  money,  and  they  usually  put  it  in  a 
bank;  but  they  took  it  home.  The  banks  were  not  paying  but  10 
per  cent  on  deposits,  and  they  had  suspended  specie  payments,  and 
I  have  liad  lots  of  men  come  to  me  to  get  me  to  sue  the  banks  and  say,' 
"If  I  ever  get  my  money  out  of  that  bank,  it  will  never  go  in  there 
again."  You  have  got  these  people  scared.  These  people  have 
individually  sinall  amounts  of  money,  but  in  the  aggregate  it  will 
amount  to  a  large  sum. 

Mr.  CowPERTHWAiT.  Of  course   j^ou   must   take   some   particular 
cction.     You  could  not  travel  all  over  the  countrv.     The  fact  is  that 


CURRENCY    LKOTSLATION.  149 

the  money  is  now  really  pilin^;-  up  in  New  York.  It  comes  from  some- 
where. There  is  $40,000,000  more  than  the  let!;al  reserves  already 
piled  up  in  New  York. 

The  Chairman.  Have  you  anything  further  to  say? 

Mr.  CowPEETinvAiT.  I  was  going  to  say  one  word  about  the  Aldrich 
bill. 

Mr.  Weems.  Ijet  me  ask  you  one  question  about  this  guarantee  of 
bank  deposits.  It  is  currently  reported  in  the  newspapers  that  very 
bad  securities  were  unloaded  on  some  of  the  New  York  banks  })y  their 
directors.  I  do  not  know  wliether  it  is  true  or  not,  but  it  has  been 
mentioned.  Assume  that  that  was  true  as  stated,  that  tens  of  mil- 
lions of  dollars'  worth  of  bad  securities  had  been  unloaded  on  these 
banks. 

Mr.  CowPERTHWAiT.  The  clearing-house  association,  you  mean? 

Mr.  Weems.  No;  the  banks  themselves. 

Mr.  Cowperthwait.  What  is  the  point  you  wish  to  make? 

Mr.  Weems.  Take  two  banks  that  have  been  named,  the  Mercan- 
tile and  the  National  Bank  of  North  America.  It  is  stated  in  the 
papers  that  the  runs  on  them  were  caused  by  the  fact  that  the  public 
got  to  know  that  tens  of  millons  of  bad  securities  had  been  dumped  on 
them  by  their  managers;  that  their  managers  had  dumped  on  them 
bad  securities,  worthless  securities.  Now,  if  their  deposits  were 
guaranteed  and  therefore  no  run  on  them  had  ever  been  started, 
would  not  that  afford  one  way  of  puttmg  a  stop  to  that  particular 
kind  of  rottenness? 

Mr.  CoAVPERTiiwAiT.  In  that  particular  case,  I  think  so. 

Mr.  Weems.  Is  not  the  standing  of  a  bank  in  the  public  opinion, 
as  to  the  conservatism  with  which  it  is  managed,  the  character  of  the 
baTdc,  the  wisdom  of  its  investments,  a  guaranty  against  losses  from 
bad  banking? 

Mr.  Cowperthwait.  It  strikes  fne  this  way,  that  if  the  deposits 
of  the  bank  were  guaranteed,  the  manager  of  a  bank  would  feel  that 
there  would  not  be  any  run  on  his  bank.  I  think  then  in  that  case  he 
would  be  more  easily  led  to  take  these  bad  securities.  When  tliey 
take  these  securities  they  do  so  based  on  the  market  value,  and  that 
market  value  changes. 

The  CiiAiRMAX.  These  men  got  in  tliere  and  bought  up  one  of 
these  banks  and  another,  and  then  pATamided  these  banks  and 
unloaded  their  stock  on  them,  and  they  were  allowed  to  borrow  half 
the  monej^  in  the  bank.  ]\Ir.  Walsh  had  three  institutions  in  Chicago, 
and  lie  borrowed  $15,000,000  himself.  The  thing  would  be  utterly 
impossible  under  this  plan.  That  is  what  brings  on  your  panics.  It 
will  not  liappen  again  in  the  same  way,  but  it  will  happen  in  a  way 
that  we  know  nothing  about,  but  it  will  have  the  same  eflect. 

Mr.  CowpERTinvAiT.  Yes.  the  same  thing:  that  will  always  liap- 
pen. 

The  CiiAiRMAX.  Not  exactly  the  same.  There  will  he  some  point 
of  difference. 

The  Chairman.  I  desire  to  express  my  thanks  to  Mr.  Cowperthwait 
on  behalf  of  the  committee  for  coming  before  us  and  giving  us  his 
views. 

Mr.  CoAVPERTHWAiT.  If  vou  will  allow  me,  I  desire  to  thank  your- 
self and  the  committee  for  giving  me  this  opportunity. 

At  12  o'clock  m.  the  connnittee  adjourned.'] 


Committee  on  Banking  and  Currency, 

House  of  Representatives, 

Wednesday,  February  5,  1908. 
The  committee  met  at  10.30  o'clock  a.  m.,  Hon.  Charles  N.  Fowler 
(chairman)  in  the  chair. 

STATEMENT  OF  HON.  WILLIAM  C.  LOVERING,  A  REPRESENTATIVE 
IN  CONGRESS  FROM  THE  STATE  OF  MASSACHUSETTS. 

Mr.  IjOVEring.  Mr.  Chairman  and  gentlemen,  I  am  here  to-day  in 
support  of  House  bill  15849  to  create  a  currency  commission  and 
frame  a  suitable  measure  to  diminish  financial  crises. 

This  bill  provides  for  eighteen  members,  six  to  be  appointed  by  the 
President  of  the  Senate,  six  by  the  Speaker  of  the  House,  from 
Members  in  Congress,  and  six  to  be  appointed  by  the  President  from 
outside  commercial  organized  bodies.  In  what  I  have  to  say  I  do  not 
propose  to  criticise  or  even  hardly  to  consider  any  of  the  bills  that  are 
before  the  committee.  I  know  that  there  are  many.  I  have  been 
over  them,  and  see  in  most  all  of  them  a  great  deal  that  is  good  and 
which  I  hope  may  result  in  some  practical  plan  sooner  or  later;  but  in 
talking  with  the  Members  of  the  Senate  and  of  the  House,  I  have 
come  to  the  conclusion  that  the  House  is  not  in  the  temper  to  consider 
any  plan  or  any  bill  that  may  be  put  before  it  to-day  with  the  purpose 
of  enacting  it  into  law. 

The  Chairman.  How  is  that?     I  did  not  quite  understand  you. 

Mr.  LovERiN(}.  I  say  that  in  talking  with  Members  of  Congress, 
both  of  the  Senate  and  of  the  House.  I  fmd  that  there  is  such  a 
diversity  of  ()])inion  as  to  what  should  be  adopted  that  T  have  doubted 
very  much  whether  in  this  session  of  Congress  there  would  be  a  dis- 
position to  act  upon  any  measure.  The  House  distrusts  itself;  the 
Senate  distrusts  itself,  its  ability  to  consider  this  question — that  is, 
the  (luestion  of  a  fundamental  reconstruction  of  our  financial  sys- 
tem. Many  of  the  measures  which  are  before  you  look  to  a  financial 
reconstruction  of  our  currency  system,  but  T  can  not  find  any  men 
who  say  that  they  are  perfectly  satisfied  in  their  own  minds  that 
this  phtn  is  right  or  that  plan  is  riglit.  There  are  a  few  who  do 
think  th(-y  know,  who  are  willing  to  take  this,  that,  or  the  other 
measure;  but  if  ycni  have  observed  durijig  the  speeches  that  have 
Ix'cii  inadr  in  the  llous(>.  they  have  been  good  speeches,  instructive, 
and  thev  have  all  received  al)()ut  the  same  a})])lause,  and  all  from  the 
sanii'  p<M)])le;  but  when  it  comes  down  to  saying  what  and  which 
measure  they  will  adopt  it  is  hard  to  pin  them  down.  It  has  been 
suggested  to  me,  and  the  suggestion  comes  both  from  Members  of 
the  House  ami  the  Senate,  and  from  outside  peo])le,  that  a  proper 
conunissioii,  a])])ointed  as  I  have  stated,  would  be  competent  to  take 
uj)  this  measure,  and  they  would  have  all  they  could  do  to  arrive  at 
a  satisfactory  result,  or  one  that  would  l)e  acceptable,  to  work  as 
hard  as  they  can  from  now  until  tlu^  next  session  of  Congress. 
1 50 


CURRENCY  LEGISLATION.  151 

The  work  of  the  monetaiy  coinniission  of  liuliaiiapohs  was  to  my 
mind  one  of  the  best  things  that  ever  happened  to  this  country, 
and  the  report  of  their  (h)ings,  I  am  free  to  confess,  is  ahnost  my 
financial  bible.  I  believe  in  it  and  the  results  that  they  reached. 
We  might  not  reach  the  same  results  again,  but  if  we  did  no  better,  if 
a  commission  went  over  the  same  ground  and  reached  the  same 
result  that  they  did  and  reported  it  to  Congress,  I  believe  Congress 
would  accept  it,  would  accept  tiie  report,  and  act  upon  it.  It  may 
be  asked,  why  can  not  this  committee  do  it?  Well,  I  think  this 
committee  could  do  the  work  if  they^  were  to  sit  steadily  and  hear 
every  tiling  that  is  to  be  said.  I  think  there  w^ould  come  a  period 
during  that  time  when  almost  every  man  on  the  committee  would 
have  a  different  view,  because  he  would  hear  everything,  but  I  think 
they  would  finally  sift  it  down  and  present  something  that  would 
be  acceptable.  But  then  you  have  got  to  take  into  account  the 
action  of  the  Senate.  They  have  ideas  of  their  own.  Then  you 
both  have  got  to  take  into  account  the  banking  interests  and  the 
outside  industrial  business  interests.  They  have  got  to  be  con- 
sidered. So  it  has  been  thought  that  wdth  a  commission  of  this 
kind  who  would  devote  themselves  unremittingly  to  the  consideration 
of  the  subject,  you  would  be  likely  to  get  results  that  w^ould  be  sat- 
isfactory. As  I  say,  I  do  not  wish  to  criticise  an}^  of  the  measures 
that  have  been  heretofore  introduced  or  reported.  The  chief  thing, 
as  I  vmderstand  it,  to  avert  a  panic  is  the  reestablishment  of  con- 
fidence. We  have  ten  forms  of  currency,  ten  forms  of  money,  and  I 
tliink  to  them  might  be  added  an  eleventh,  which  would  be  equal 
to  the  eleventh  commandment. 

The  Chairman.  You  think  we  are  ready  for  an  eleventh  command- 
ment? 

Mr.  LovERiNG.  I  do  not  know\ 

The  Chairman.  Thou  shalt  not  be  found  out? 

Mr.  LovERiNG.  Thou  shalt  not  be  found  out.  But  I  think  the 
eleventh  form  of  currency  is  confidence.  Confidence,  for  confidence 
means  credit.  Confidence  is  the  best  form  of  money.  I  do  not  mean 
to  say  that  the  eleventh  commandment  and  the  eleventh  form  of  cur- 
rency mean  exactly  the  same  thing.  I  do  not  wish  to  be  understood 
in  that  way.  This  bill  croes  further  than  to  merely  frame  a  measure, 
and  as  stated,  it  authorizes  the  commission  to  ascertain  the  cause  of 
the  recent  crisis. 

Mr.  Weeks.  Right  there  I  would  like  to  ask  Mr.  Levering  a  ques- 
tion. 

The  Chairman.  Will  a'ou  allow  the  gentleman  to  ask  vou  a  ques- 
tion? 

Mr.  LovERiNG.  I  do  not  object.  I  would  like  to  continue  the 
thread  of  my  thought,  but  I  will  resume. 

Mr.  Weeks.  Speaking  of  the  cause  of  the  panic,  I  would  like  to 
ask  you  if  j'ou  think  that  our  currency  sj^stem  or  the  amount  of 
currency  that  there  was  in  circidation  last  year  liad  anything  wdiat- 
ever  to  do  with  that  ? 

Mr.  LovERiNG.  Absolutely  nothing.  I  am  not  sure  but  what  we 
have  the  best  currency  in  the  world.  It  has  served  us  for  over  forty 
years,  and  no  man  has  ever  lost  a  dollar. 

The  Chairman.  What  happened  to  him  when  it  was  worth  only 
35  cents  on  the  dollar? 


152  CUKRENCY   LEGISLATION. 

Mr.  LovERiXG.  That  was  as  between  gold  and  silver,  and  we  had 
a  gold  reserve. 

The  Chairmax.  As  far  as  you  had  your  gold  reserve,  he  would 
not  have  lost  anything,  would  he? 

Mr.  LovERiXG.  Oh,  no;  I  quite  agree  with  you  on  that. 

The  Chairman.  How  can  you  make  it  the  best  currency  in  the 
w^orld  if  it  was  w^orth  only  35  cents  on  the  dollar? 

Mr.  LovERixG.  When  I  say  that,  I  mean  that  since  .there  has  been 
really  the  gold  standard  it  has  been  the  best. 

The  Chairman.  How  can  you  call  it  the  best  currency  in  the 
world  when  it  is  now  conceded  by  everybody  generally  that  it  is 
the  worst  in  the  world  because  it  has  no  relation  whatever  to  the 
business  of  the  country? 

IMr.  LovERiXG.  I  was  going  on  to  say,  if  you  will  allow  me — I  do  not 
speak  of  the  way  we  handle  it,  of  the  security  of  it — that  it  has  been 
sufficient.  It  is  the  best  currency  in  the  world  on  this  score :  That  you 
never  look  at  the  bill  you  have  in  3^our  pocket,  and  you  never  look  to 
see  what  bank  it  is  on  when  you  receive  it  or  pay  it  out.  Probably 
you  do  not  remember  how  it  was  back  in  1857,  but  I  do  distinctly, 
because  I  remember  the  panic  of  1857  most  distinctly.  I  remember 
seeing  the  lines  of  depositors  withdrawing  their  funds,  every  man 
presenting  the  notes  of  the  bank  for  redemption  in  gold  or  silver;  at 
that  time  the  bank  notes  were  scrutinized.  I  remember  very  well  in 
1857  in  Massachusetts  standing  in  the  bank  and  seeing  them  come  in 
and  present  their  bills  to  be  redeemed  then  and  there.  That  was 
really  the  essence  of  the  panic;  I  mean  to  say  in  the  result  of  the 
panic.     A  panic  is  one  thing  and  a  crisis  is  another. 

The  Chairman.  There  was  a  crisis  there? 

Mr,  LovERixG.  There  was  a  crisis. 

The  Chairman.  Do  you  think  that  an  American  citizen  looks  on  a 
national  bank  note  when  he  lays  it  down  with  any  more  peculiar  con- 
fidence than  a  Scotchman  when  he  lays  downi  a  Scotch  note,  or  a 
German  when  he  lays  down  a  German  note,  or  an  Englishman  when 
he  lays  down  an  English  note,  or  a  Canadian  when  he  lays  down  a 
Canadian  note  ? 

Mr.  LovERiNG.  No. 

The  Chairman.  What  is  there  peculiar  about  the  fact? 

Mr.  LovERiNG.  You  know  that  in  the  panic  of  1857  the  bank  notes 
were  discredited,  while  in  the  recent  panic  not  a  doubt  rested  on  the 
qualit}^  or  validity  of  a  single  bank  note. 

The  Chairman.  They  know  too,  do  they  not? 

Mr.  LovERiNG.  Yes. 

The  Chairman.  Then  there  is  no  peculiarity  about  our  currency  in 
that  respect? 

Mr.  IjOvering.  You  dici  not  allow  me  to  finish.  I  had  not  really 
stated  my  idea.  Wo  speak  of  a  panic  and  a  crisis  as  being  the  same 
thing.  The  panic  is  the  result  of  the  crisis.  One  man  may  stop  or 
start  a  panic.  I  remember  once  being  in  a  theater  when  the  curtain 
caught  fire.  One  person  rose;  I  rose,  and  all  the  rest  rose;  but  one 
man  down  in  the  front  shouted  "Sit  down,"  and  everybody  sat  down; 
and  in  a  few  minutes  the  fire  was  extinguished.  That  is  the  panic, 
'i'he  panic  is  the  result  of  an  unreasoning  animal  instinct.  As  1  say, 
1  rcmonibcr  such  a  panic,  a  bank  panic,  that  I  witnessed  in  1857.  I 
^food  there  and  saw  them  pay  money  out  of  the  bank,  and  they  paid 


CURRENCY  LEGISLATION.  153 

out  somctliino;  like  $S,OnO  or  S10,000  only  in  one  forenoon.  I  stood 
at  the  Knickerbocker  Trust  Company  a  few  weeks  ago  in  the  fore- 
noon, and  they  paid  out  .18,000,000  l)efore  12  o'clock. 

The  CiiAiKMAX.  What  ha|)pened  to  the  Trust  Company  of  Amer- 
ica?    They  did  not  pay  it  back  there,  did  they? 

Mr  LoyERiNG.  They  had  learned  a  little.  But  in  1857  they  liad 
learned  to  protect  themselves  in  certain  ways.  They  used  all  kinds  of 
tricks.  They  woultl  pay  a  lot  a  money  to  a  man  outside,  and  he 
would  come  around  and  make  a  great  show  of  depositing  it. 

The  Chairman.  They  did  that  up  at  the  Lincoln  this  time. 

Mr.  LoyERiNG.  I  do  not  (h)ubt  it. 

Mr.  Weeks.  Do  you  not  think  it  would  be  better  to  say  they  used 
"all  kinds  of  good  judgment"  instead  of  "all  kinds  of  tricks?" 

Mr.  LoyERiNG.  1  will  ask  the  stenograplier  to  change  that,  if  you 
please.     I  may  be  tripped  into  sa3^ing  something  that  I  do  not  mean 

Mr.  Weems.  On  the  New  England  banks  in  1857  was  there  much 
of  a  run  for  gold,  presenting  the  notes  themselves  for  redemption? 

Mr.  LovERiNG.  Gold  or  silver;  they  did  not  discriminate  so  much 
between  gold  and  silver.  They  were  satisfied  if  the}^  were  paid  in 
either. 

Mr.  Weems.  Was  there  much  of  a  run,  presenting  notes  for 
redemption? 

Mr.  Lovering.  Oh,  yes;  and  they  fared  better  in  New  England  than 
they  did  elsewhere,  because  of  our  system  of  redemption,  y  We  had 
there  the  Suffolk  bank  system,  which  I  believe  was  the  best  system 
that  has  ever  been  adopted.  But  then  the  banks  in  the  West  would 
send  great  lots  of  their  money  east  in  packages  by  express,  with  the 
expectation  that  it  would  be  distributed  there,  and  it  would  likely 
find  its  way  back  to  the  bank  in  the  same  packages  by  another 
express.  Eastern  banks  sent  money  west  in  the  same  way,  and  it 
came  back.  But  I  think  we  in  New  England  fared  as  well  as  or  bet- 
ter than  they  did  in  the  other  parts  of  the  country. 

The  Chairman.  There  was  only  one  bank  left  in  Indiana,  and  that 
was  the  State  Bank  of  Indiana.     Ever^^  other  bank  failed. 

Mr.  I^overing.  I  am  inclined  to  think  you  are  right. 

The  Chairman.  I  know  that  I  am  right.  You  had  505  banks  in 
New  England  when  the  panic  started,  and  I  think  there  were  only 
seven  or  eight  failures  out  of  that  whole  number  of  500  banks  in  all 
of  New  England. 

Mr.  Lovering.  There  were  a  great  many  industria  anks  in  New 
England.  But  our  banks  stood  it  very  well.  I  believe  you  asked 
me  a  question,  Mr.  Weeks. 

Mr.  Weeks.  Do  you  not  think  your  ]iroposed  commission  is  too 
large? 

Mr.  Lovering.  I  think  not  for  a  final  result.  I  have  talked  that 
over  with  the  Secretary  of  the  Treasury,  with  Mr.  Aldrich,  with 
Speaker  Cannon,  and  they  all  have  favored  this  proposition,  and 
while  you  may  work  through  subcommittees  to  do  perhaps  the  drudg- 
ery of  the  work  in  a  final  rej)ort  it  is  desirable  to  hnve  a  little  larger 
committee,  a  commission  about  the  size  of  this  committee,  and  the 
bill  pro\'ides  that  subcommittees  may  be  appointed. 

Mr.  Weeks.  Did  those  gentlemen  indicate  that  they  would  be 
willing  to  refrain  from  pressing  the  Aldrich  bill  at  this  session? 

Mr.  Lovering.  There  was  nothing  said  about  that.  I  do  not 
know  anvthino;  about  that. 


154  CURRENCY   LEGISLATION. 

The  Chairman.  Have  j^ou  ever  seen  a  commission  appointed 
through  pohlics  as  this  is  to  be  appointed — I  mean  so  many  from  the 
House  and  so  many  from  the  Senate^that  ever  amounted  to  any- 
thing ? 

Mr.  LovERiNG.  Yes. 

The  Chairman.  Which  one? 

Mr.  LovERiNG.  You  say  did  I  ever  see  one? 

The  Chairman.  Yes. 

Mr.  LovERiNG.  Not  on  this  question. 

The  Chairman.  On  any  question,  I  mean.  You  take  the  mone- 
tary commission  which  was  appointed  by  chambers  of  commerce 
and  boards  of  trade  of  this  country — probably  as  able  a  commission 
that  ever  sat  in  this  country — and  they  came  to  a  conclusion  that 
was  absolutely  sound,  and  what  happened  to  the  bill  when  they  got 
it  in?  It  was  a  grand  commission,  and  they  made  a  learned  report, 
absolutely  right,  and  it  was  spit  upon. 

Mr.  Lovering.  I  should  be  very  sorry  to  see  a  commission  ap- 
pointed that  did  not  include  some  members  of  this  committee;  in- 
cluding yourself,  sir.  I  should  be  very  sorr}^  to  see  such  a  commission 
appointed  that  did  not  include  that  class  of  men,  and  an  equally 
good  class  from  the  Senate,  and  as  for  its  being  partisan  in  any  sense, 
I  was  talking  with  the  Speaker,  and  he  thought  that  the  six  men  to 
be  appointed  on  the  part  of  the  House  should  be  divided  in  propor- 
tion, somewhat  to  the  membership  of  the  House,  to  make  it  unparti- 
san  in  that  way,  to  make  it  consist  of  both  Republicans  and  Demo- 
crats, and  the  same  in  the  Senate;  and  as  for  the  men  outside,  we  do 
not  ask  what  their  politics  are. 

Mr.  Waldo.  If  you  did  that,  would  you  have  any  tiling  very  different 
from  the  two  committees,  one  of  the  Senate  and  one  of,  the  House,  as 
they  are  to-day? 

Mr.  Lovering.  If  the  committees  of  the  Senate  and  House  would 
work  together  and  present  something  that  the  people  are  ready  for, 
I  should  be  very  glad  to  see  them  do  it,  but  I  do  not  see  any  prospects 
of  it.  Excuse  me,  I  do  not  mean  to  criticise  the  doings  of  this  com- 
mi{tee. 

Mr.  Waldo.  No;  not  at  all.  I  wanted  to  see  whether  jou  could 
see  an}^  difference.  Personally  I  do  not  see  any  difference  between 
such  a  commission  as  you  provide  for  and  these  two  committees. 

Mr.  Hayes.  You  have  no  hopes  that  such  a  committee  would 
agree  upon  any  proposition  that  would  be  proposed? 

Mr.  Lovering.  Hope  springs  eternal. 

Mr.  Hayes.  But  you  have  no  reasonable  hope? 

Mr.  Lovering.  Yes;  I  have  reasonable  hope. 

Mr.  Hayes.  I  have  not. 

Mr.  Lovering.  If  I  had  not,  I  certainly  would  not  be  pressing  this 
bill.  I  have  reasonable  hope  that  such  a  commission  would  arrive  at 
something.  I  woidd  ask  in  return,  have  you  any  hope  that  you  mil 
get  a  bill  which  would  go  through  this  Congress? 

Mr.  Hayes.  I  have  every  hope  that  we  can  get  this  committee  to 
agree  upon  a  bill  that  will  be  sound.  I  think  we  will  agree,  when  we 
get  down  to  it. 

Mr.  Lovering.  That  will  be  so  much  gained. 

Mr.  Hayes.  I  hope  so.  It  may  be  a  little  presumptious  on  my  part 
to  say  so,  but  I  believe  that  this  committee  understands  the  subject 


CURRENCY  LEGISLATION.  155 

and  the  situation  as  well  as  most  connnissions  you  would  ^et  ap- 
pointed. 

Mr.  I^ovERiNG.  I  hope  that  may  be  so,  but  when  the  bill  has  passed 
through  all  the  pitfalls  of  the  House,  it  has  got  to  enter  the  Senate. 

Mr.  Hayes.  It  would  have  to  do  it  in  any  case,  if  you  have  a  com- 
mission. 

Mr.  LovERiNG.  I  understand  that,  but  there  is  a  OTeat  deal  of  work 
to  be  done  if  you  arc  going  to  adopt  a  measure  wliich  will  be  a  funda- 
mental reconstruction  of  the  whole  fmancial  system  of  tliis  country. 

Mr.  Hayes.  There  has  got  to  be  a  great  deal  of  work  of  education 
done.  I  do  not  think  you  would  have  to  do  a  great  deal  with  this 
committee.  There  has  got  to  be  a  great  deal  of  work  of  education 
done  with  the  public  and  with  members  of  the  House  and  Senate. 

Mr.  LovERiNG.  I  agree  with  you. 

Mr.  Waldo.  Let  me  call  your  attention  to  one  of  the  greatest  Com- 
missions appointed  lately,  the  Merchant  Marine  Commission,  ap- 
pointed by  the  President,  who  agreed  that  there  was  only  one  thing 
that  could  be  done;  and  then  let  me  call  your  attention  to  the  report 
of  that  Commission  when  it  got  into  the  Senate  and  came  to  the 
House. 

Mr.  LovERiNG.  How  is  that  Commission  formed  ? 

Mr.  Waldo.  It  is  formed  by  an  act  of  Congress. 

Mr.  LovERiNG.  Of  whom  is  it  made  up  ^ 

jVIt.  Waldo.  Of  members  of  the  Senate  and  House. 

Mr.  LovERiNG.  Any  members  from  outside? 

Mr.  Waldo.  None  from  outside.  They  agreed  absolutely — that  is, 
the  majority  did;  there  was  no  dissent.  They  said,  after  hearing 
everybody,  going  over  all  the  United  States  and  hearing  everybody, 
that  there  was  only  one  thing  that  could  be  done  at  the  present  junc- 
ture to  restore  a  merchant  marine  to  this  country,  and  both  sides  were 
unanimous. 

Mr.  LovERiNG.  It  was  a  unanimous  report,  was  it  not  ( 

Mr.  Waldo.  It  was  a  imanimous  report  of  the  majority.  There 
was  a  minority  report. 

Mr.  Weems.  Was  that  not  the  trouble  with  the  Commission  ?  Was 
it  not  unanimous  before  it  investigated? 

Mr.  Waldo.  No;  as  a  matter  of  fact  they  were  unanimous,  both 
the  majority  and  the  nunority,  upon  only  one  scheme  being  practi- 
cable, and  that  was  discriminating  duties.  After  an  investigation 
the  majority  concluded  that  on  account  of  the  numerous  treaties 
that  could  not  be  done  ,and  that  the  only  thing  that  could  be  done  was 
in  the  way  of  subsidies  and  tonnage  bounties;  and  yet  when  it  came 
into  the  House,  with  an  enormous  Republican  majority  and  a  great 
Republican  majority  in  the  Senate,  it  absolutely  failed.  Now,  I  do 
not  look  for  any  good  return  from  a  commission.  I  think  we  had 
better  go  ahead  and  do  the  best  we  can;  that  is  my  own  view. 

The  Chairman.  Is  there  any  other  question  you  want  to  say  some- 
thing on? 

Mr.  LovERiNG.  I  am  not  a  very  ardent  advocate  of  commissions, 
or  running  the  Government  by  commissions.  I  am  free  to  say  that 
yesterday  I  made  a  minority  report  where  I  stood  alone  among  the 
Republican  members  of  the  committee  against  a  commission,  or 
establishing  a  commission — a  commission  to  investigate  strikes  and 
that  sort  of  thing.  I  am  free  to  say  that  I  voted  against  it,  although 
I  stood  alone  as  a  Republican  on  the  committee,  and  I  am  not,  as  a 


156  CURRENCY   LEGISLATION. 

rule,  in  favor  of  it.  But  I  do  think  that  this  subject  is  such  a  vast 
one,  and  after  all  is  said  and  done  it  ramifies  to  the  utmost  ends  of. 
the  country,  and  so  many  interests  have  got  to  be  considered  that 
force  themselves  to  the  attention  of  the  people,  that  the  members  of 
Congress  to-da}',  I  am  assured,  are  unable  to  sa}^  themselves  whether 
they  will  vote  for  any  bill  at  all,  or  what  bill  they  will  vote  for. 

The  Chairman.  They  have  not  heard  a  bill.  There  has  been  no 
bOl  proposed  to  them,  or  discussed. 

Mr.  LovERiNG.  The}'  have  heard  one  plan  after  another  suggested, 
ably  argued,  ably  debated  in  the  House,  and  they  applauded  it  to  the 
echo;  and  then  they  heard  another  plan,  and  they  applauded  that 
to  the  echo,  and  another,  and  they  applauded  that — all  sides,  all 
parties. 

Mr.  Waldo.  You  do  not  think  there  are  but  three  plans  that  really 
can  be  discussed,  do  you — namely,  the  central  bank,  the  credit  currency, 
and  the  Aldrich  bill,  which  is  not  a  plan  at  all? 

Mr.  LovERixG.  The  Aldrich  bUl  is  simply  an  emergency  measure, 
of  course. 

Mr.  Hayes.  You  mean  it  is  designed  to  be  an  emergency  measure? 

Mr.  LovERiNG.  Well,  I  am  not  particular  about  the  use  of  my 
language  on  that  point.  Yovi  may  say  what  you  please  about  it. 
There  is  a  good  deal  to  be  said  in  favor  of  it,  and  something  against  it. 

Mr.  Waldo.  Do  you  think  if  you  have  a  commission  appointed 
that  there  are  any  other  plans  known  to  the  financial  history  of  the 
world  that  would  give  any  real  system  to  be  presented  by  this  com- 
mittee or  by  Congress,  except  the  three  main  plans  that  are  now 
before  us? 

Mr.  LovERiNG.  Perhaps  not. 

Mr.  Waldo.  Do  you  think  so? 

Mr.  LovERiNG.  Perhaps  not.     Each  one  in  some  modified  form. 

Mr.  Waldo.  That  is  a  matter  of  detail. 

Mr.  LovERiNG.  Indeed  it  is  a  matter  of  detail,  but  detail  is  not 
to  be  ignored  in  the  framing  of  a  matter  of  that  sort. 

Mr.  IIayes.  I  want  to  get  a  little  of  your  idea  of  this  proposition. 
Do  you  think  that  such  a  proposition  could  bring  out  any  new  facts 
to  amount  to  anything  that  are  not  already  accessible  to  anybody 
who  wants  to  look  for  them? 

Mr.  ] jOvering.  For  me  to  answer  that  question  would  appear  to 
be  impugning  the  efforts  and  the  purposes  of  this  comiiiittee,  and  I 
do  not  propose  to  do  anything  of  the  kind. 

Mr.  Hayes.  Oh,  not  at'  all. 

Mr.  Lovering.  I  do  not  want  to  be  found  or  placed  in  that  position. 

Mr.  Hayes.  Thinking  this  over,  and  I  have  thought  of  it  before, 
I  do  not  see  any  mine  of  now  facts  that  any  commission  could  pos- 
sibly investigate  that  woi  Id  give  any  promise  of  any  great  addition 
to  the  Sinn  of  human  knowledge  in  regard  to  this  question. 

Mr.  LovEinxG.  Porha])s  not.  As  I  said  at  the  outset,  if  they 
did  no  better  than  to  arrive  at  the  same  result  that  the  Indianapolis 
monetary  commission  did,  they  wo^.ild  do  well.  I  do  no't  wish  to 
detain  the  committee  any  fiirther.  There  are  a  great  many  gentle- 
men who  would  like  to  be  heard  on  this  subject. 

Mr.  Waldo.  We  have  been  sitting  here  to  hear  everybody  that 
would  come. 

Mr.  LovEHiNG.  1  have  this  to  say  before  I  finish,  that  if  this  com- 
mittee can  re])ort  out  a  bill  that  will  meet  the  situation  and  my 


CIRKKNCY    LEGISLATION.  157 

approval,  I  certainly  shall  vote  for  it  and  sustain  the  committee  in  it. 
As  for  the  expectation  that  this  committee  will  report  something 
which  the  House  and  Senate  will  adopt,  I  feel  so  doubtful  about  it 
that  I  am  led  to  introduce  this  bill. 

The  Chairman.  Do  }'ou  think  we  have  anything  to  do  with  what 
the  Senate  may  do  or  what  the  House  may  do?  As  men  of  character 
and  as  patriots,  without  regard  to  party,  do  you  tliink  we  ought  to 
consider  that? 

Mr.  LovERiNG.  I  said  I  did  not  wish  to  impugn  any  of  the  motives 
or  purposes  of  this  committee,  and  I  do  not;  but  before  a  bill  becomes 
law,  you  know  as  well  as  I  do  that  it  has  got  to  pass  both  branches 
of  Congress,  and  I  aim  at  something  that  will  do  something.  I 
do  believe  that  if  something  is  not  done  and  done  at  this  session  we 
will  see  the  worst  panic  we  have  ever  seen  in  the  history  of  this 
country. 

Mr.  Waldo.  Do  you  believe  tliat  if  we  should  agree  to  report  out 
the  Aldrich  bill,  and  it  should  pass  the  House,  that  would  be  of  the 
slightest  assistance  on  the  present  occasion? 

Mr.  PIayes.  As  a  matter  of  fact,  would  there  be  a  new  menace  ? 

Mr.  LovERiNG.  I  did  not  propose  to  be  brought  into  a  discussion 
on  that  subject.  I  will  tell  you  this,  that  as  the  Aldrich  bill  at  present 
is  in  e^^dence,  I  do  not  fav6r  it.  The  Aldrich  bill  I  can  conceive 
being  put  into  such  shape  that  I  would  favor  it  as  an  emergency 
measure.  I  think  the  intent  of  the  thing  is  good,  but  I  think  some 
of  the  provisions  are  bad.  That  is  about  all  I  want  to  say  about  the 
Aldrich  bill,  and  I  tliink  most  of  you  gentlemen  mil  agree  with  me 
up  to  that  point. 

Mr.  Hayes.  I  think  we  would  agree  with  you  wholly,  so  far  as  I 
have  heard. 

Mr.  LovERiNG.  May  I  have  the  privilege  of  bringing  some  gentle- 
men from  New  York,  a  little  later,  before  the  committee,  who  would 
like  to  be  heard  on  this;  not  to  day,  but  very  soon? 

Mr.  Hayes.  Some  day  this  week? 

Mr.  LovERixG.  I  hardly  think  so. 

The  Chairman.  On  the  simple  question  of  appointing  a  commis- 
sion? 

Mr.  LovERiNG.  Yes. 

The  Chairman.  Wliat  is  the  pleasure  of  the  committee?  Do  you 
care  to  hear  anything  on  the  subject? 

Mr.  Waldo.  I  msh  Mr.  I^overing  would  give  us  a  list  of  gentlemen 
who  wash  to  be  heard. 

Mr.  Hayes.  It  would  be  well  to  state  to  Mr.  Lovering  that  we 
passed  a  motion  at  our  last  meeting  that  we  would  close  these  hear- 
ings on  Saturda}". 

Mr.  Waldo.  I  do  not  take  it  that  that  means  hearings  on  all  bills, 
but  on  currency  legislation. 

Mr.  Hayes.  Yes;  on  currency  legislation. 

Mr.  Waldo.  We  have  another  bill  of  a  character  similar  to  that 
of  Mr.  Lovering  and  I  do  not  see  why  we  can  not  hear  these  gentlemen 
upon  that. 

The  Chairman.  I  will  ask  Mr.  Lovering  to  address  a  letter  to  the 
committee  requesting  such  a  hearing,  and  then  the  committee  ^^^ll 
take  it  up. 

Mr.  Lovering.  Very  well,  Mr.  Chairman. 


158  CURRENCY   LEGISLATION, 


STATEMENT   OF  MR.  EDMUND    D.  FISHER,  SECRETARY    OF   THE 
FLATBUSH  TRUST  COMPANY,  OF  NEW  YORK. 

Mr.  FiSHEK.  Mr.  Chairman,  and  gentlemen,  I  am  secretary  of  the 
Flatbiish  Trust  Company,  of  New  York,  and  was  last  year  a  member 
of  the  council  of  administration  of  the  New  York  State  Bankers' 
Association,  and  in  that  connection  had  something  to  do  with  the 
resolution  that  was  passed  in  regard  to  credit  currency.  I  am  very 
glad  to  be  here  to-day,  because  I  have  been  invited  to  be  here  by  my 
good  friend  and  neighbor,  Congressman  Waldo,  and  also  because  I 
have  been  brought  very  pleasantly  in  contact,  at  the  recent  meetmg 
of  the  New  York  State  bankers'  convention,  with  your  chairman. 

What  I  have  to  say  will  be  very  brief,  and,  I  think,  simple.  I  have 
but  one  general  topic  to  talk  upon.  Wlien  I  came  into  the  room  I 
had  but  one  topic,  ''currency,"  but  I  have  added  to  that  one  other, 
which  I  will  call  "courage."  It  seems  to  me  that  is  to  be  the  point 
this  year,  whether  you  gentlemen  in  Congress  have  courage  to  pass  a 
sound  currency  measure.  The  financial  history  of  the  country  I 
have  here  on  two  pages,  giving  causes  of  panics  as  political,  com- 
mercial, money,  railroads,  labor.  Wall  street.  These  may  be  called 
superficial  causes  in  a  general  way.  The  cause  of  panics  we  all  know 
to  be  business  errors  of  all  kinds  and  descriptions,  political  errors  of 
all  kinds  and  descriptions,  and  a  panic  is  the  natural  consequence  of 
those  errors  and  adjustment  back  to  normal  and  sane  conditions. 
Through  this  analysis  I  find  in  the  history  of  the  country  since  the 
panic  of  1814  the  so-called  panic  cause  of  "money"  predominates, 
and  during  these  ninety-three  years  money  difficulties  have  been 
acutely  present  forty  times.  There  are  men  of  banking  experience 
who  will  tell  you,  particularly  in  New  York,  that  money  difficulties 
are  present  every  year,  particularly  during  the  fall  of  every  year, 
but  money  difficulties  have  been  so  acute  as  to  be  recorded  in  economic 
books  in  relation  to  this  period  of  time  on  forty  different  occasions, 
starting,  as  I  said,  with  the  panic  of  1814,  and  from  that  time  to  this 
there  have  been  twelve  periods  of  acute  panic,  or  an  average  of  one 
every  seven  and  three-quarter  years. 

It  is  therefore  evident  from  this  statement  that  money  difficulty  is 
at  the  root  of  this  matter,  and  that  a  cure  of  these  conchtions  to  some 
degree  at  least  must  come  from  an  amendment  or  correction  of  our 
currency  laws.  Briefly  stated,  I  believe  that  we  want,  first,  credit  on 
proper  reserves.  We  have  book  credit.  This  country  is  the  great 
booK-credit  country.  Deposits  in  banks,  savings  banks,  and  trust 
companies  have  proved  to  be  very  successful  most  of  the  time.  The 
crcdil  based  on  note  form  we  are  deficient  in,  as  is  evidenced  by  every 
one  of  these  acnite  panics,  where  mone}^  is  hoarded,  where  there  is 
stringency,  and  where  business  suffers.  We  want,  if  we  issue  such 
credit  notes,  confidence  in  those  notes.  They  should  ])o  printed  by  the 
Government.  There  should  be  a  guaranty  fund  to  protect  these  notes 
and    they  should    be    a    preferred    claim    on    the    assets  of   banks. 


CURRENCY  LEGISLATION.  159 

There  should  also  be  enforced  consultation  of  hankers  to  protect  the 
bankers  themselves,  to  prevent  these  business  errors,  not  alone  in 
relation  to  the  currency  itself,  but  as  a  broad  princij)le.  I  will  illus- 
trate that  j)()int  later,  giving  as  a  concrete  illustration  the  dillicullies 
in  Brooklyn  during  the  recent  financial  crisis.  There  should,  of  course, 
also  be  automatic  retirement  of  these  notes.  There  should  be  gold 
reserves  as  the  basis  both  of  the  book  credits  and  of  the  note  credits. 
We,  happily,  are  now  in  no  international  difliculty.  The  time  may 
come,  however,  and  some  people  are  said  to  want  it  to  come,  when 
there  will  be  international  trouble,  and  our  relations  with  the  countries 
of  Europe  should  be  on  a  sound  iinancial  basis,  and  gold,  now  recog- 
nized as  that  financial  basis,  should  prevail.  If  we  adopt  the  note 
form  of  credit,  there  should  l)e  a  reserve  for  those  notes,  l)oth  in  the 
banks  themselves  and  with  the  Government.  There  should  be  a  tax 
on  these  notes  sufficient,  I  believe,  only  to  provide  for  the  guaranty 
fund.  I  find  that  there  is  an  erroneous  idea  among  business  men  that 
by  putting  a  heavy  tax  on  notes  you  can  compel  their  retirement. 
That  is  fundamentally  wrong.  You  can  put  a  note  out  and  tax  it  for 
its  full  face  value,  and  it  will  not  come  back  any  sooner  on  account  of 
the  tax. 

There  should  be  conservation  of  the  value  of  the  Government 
bonds  now  used  to  secure  our  present  circulation.  The  Government 
has  provided  these  as  a  basis  for  our  note  circulation;  and  if  your 
committee  frames  or  advocates  a  bill  that  provides  for  the  retire- 
ment of  these  bonds,  it  is  but  honorable  that  the  Government  sliould 
see  that  the  people  who  have  bought  these  bonds,  because  of  the 
relations  of  the  Government  with  national  banks,  should  be  reim- 
bursed and  that  there  should  be  no  loss. 

By  this  plan  which  I  have  outlined  you  would  have  a  currency 
similar  to  that  which  has  been  tested  in  Canada,  has  been  tested  in 
Scotland,  has  been  tested  in  Germany,  has  been  tested  in  France, 
and  in  part  has  been  tested  in  this  country,.  It  was  tested  by  the 
first  and  the  second  Banks  of  the  United  States.  It  was  tested  in 
New  England  through  the  Suffolk  Banking  System.  It  is  based  on 
sound  principle  as  to  reserves  and  based  upon  sound  principle  as  to 
mutual  supervision  and  relation.  The  gentleman  who  spoke  before 
I  appeared  before  you  said  that  the  best  banking  system  he  knew 
about  in  the  world  was  the  Suffolk  Banking  System.  A  like  system 
has  been  tested  in  a  superficial  way,  and  yet  a  sufHcient  way,  during 
the  past  few  months.  I  have  in  my  hand  a  certificate  of  the  Augusta 
Clearing  House  Association  that  drifted  to  Brooklyn,  guaranteed  by 
the  National  Bank  of  Augusta,  the  Planters'  Tjoan  and  Savings  Bank, 
and  others.  That  is  a  simple  guaranty.  It  went  .out  as  a  credit 
currency.  It  was  retired  when  its  use  had  ceased,  and,-  so  far  as  it 
remains  in  my  possession,  I  fail  to  see  how  it  will  be  an  inflating  ele- 
ment. I  have  also  a  two-dollar  note  drawn  on  a  State  bank  and 
trust  company  of  Cleveland,  Ohio.  This  Avas  drawn  by  a  manufac- 
turer. On  the  back  of  it,  printed  in  six  different  languages,  are  the 
conditions  under  which  this  note  was  issued  and  the  provisions  for 
its  retirement.  I  understand  this  worked  beautifiUly  in  Cleveland. 
It  was  issued  to  pay  wages  in  the  absence  of  a  supply  of  Government 


160  CURKENCY   LEGISLATION. 

currency  and  served  its  i)iirpose,  was  received  by  the  local  merchants, 
and  in  this  instance  drifted  to  Brookh^l  and,  if  we  desire,  can  be  sent 
back  to  Cleveland  to  be  redeemed.  These  are  simply  concrete  illus- 
trations of  the  efficiency  of  the  credit  principle  without  governmental 
guaranty  or  control.  The  plan  worked  during  one  of  the  worst  panics 
in  the  financial  history  of  the  country. 

We  have  before  us,  three  bills  that  are  attracting  attention  through- 
out the  country,  and  certainly  in  New  York.  We  have  the  Fowler  bill, 
the  banker's  bill,  and  the  AJdrich  bill.  The  Aldricli  bill  I  find  from 
conversation  with  eastern  men,  who  are  the  men  who  are  supposed  to 
be  most  in  favor  of  it,  to  be  absolutely  objectionable.  I  need  not 
B,na.\jze  that  objection,  except  to  cite  the  one  fundamental  point  that 
in  order  to  secure  this  temporary;  currency,  so  called,  the  banks  have 
got  to  use  fundamental  reserves  in  order  to  buy  bonds.  That  would 
be  the  status  in  Xew  York,  and  the  farther  w^est  you  go  the  more 
onerous  will  be  that  condition.  There  are  manj^  sections  of  the  coun- 
try without  the  facilities  for  bujdng  bonds  and  without  the  desire  or 
need  for  bupng  bonds  to  whom  this  emergency-currency  scheme  mil 
be  absolutei}'  useless;  so  that  if  it  is  objected  to  in  the  Central  West 
and  the  Far  West,  and  even  more  objected  to,  apparently,  in  the  East, 
to  whom  it  is  suppose  to  cater,  it  seems  to  me  there  is  no  further  reason 
to  discuss  it.  I  am  in  favor  in  a  general  way  of  what  is  known  as  the 
Fowler  bill.  I  developed  my  own  suggestions  without  reference  to 
the  Fowler  bill,  but  in  every  way  the  Fowler  bill  seems  to  fit  them. 
If  this  bill  can  not  be  passed,  as  a  member  of  the  American  Bankers' 
Association  and  of  the  New  York  State  Bankers'  Association,  I  am 
in  favor  of  the  bankers'  bill,  so  called,  because  that,  in  some  degree,  at 
least,  uses  the  credit-currency  principle  which  is  going  to  be  recognized 
as  the  only  sound  principle  in  banking.  It  has  been  tested,  as  we  have 
seen,  all  over  the  world,  as  well  as  tested  in  this  country,  and  not  found 
to  be  wanting. 

In  this  connection  I  think  there  is  one  very  valuable  suggestion  in 
the  Fowler  bill,  and  I  will  refer  to  our  conditions  in  Brooklyn  in  that 
connection,  and  that  is  what  we  call  in  the  State  a  group  plan,  what 
in  some  cities  is  in  effect  a  clearing-house  plan  of  combination.  In  our 
State  association  the  group  plan  is  purely  a  sentimental  one.  We  get 
together  in  various  parts  or  the  State  during  the  year  and  elect  our 
officers  and  have  conferences  on  financial  questions;  but  the  result  when 
a  panic  comes  amounts  to  nothing.  I,  for  instance,  during  the  panic 
was  chairman  of  what  is  known  as  group  7  of  the  New  York  State 
Bankers'  Association,  taking  in  all  the  banks  of  Long  Island  and 
Brooklyn.  I  had  no  power  to  call  my  associates  together  and  provide 
any  means  for  helping  the  banks;  and  if  I  had  had  that  power  at  that 

E articular  time  our  mutual  distrust  of  those  in  difliculty  would  have 
een  so  great  that  I  very  greatly  question  whether  we  could  have  done 
anything  for  them.  You  want  to  provide  for  these  things  in  advance 
of  the  panic.  The  beauty  of  the  Fowler  bill  and  the  principles  it 
embodies  is  that  it  discounts  the  panic.  Your  Aldricli  bill  almost 
presupposes  the  panic.  You  do  not  want  a  measure  that  is  going  to 
come  and  help  you  out  of  a  difliculty  after  you  are  in  it;  you  want  to 
prevent  your  difliculty.  Of  course  we  can  not  prevent  all  difliculty 
m  tlu^  world  of  business  forever  by  any  bill,  but  we  can  discount 
money   didiculties.     Men,  we  say,   are  sinners  morally.     They  are 


OUBSENOY  LEGISLATION.  161 

sinners  in  business.  During  a  period  of  ten  years  there  will  be  a 
number  of  inistakes  made,  and  those  mistakes  have  got  to  be  cleared 
somehow.  Mistakes  should  be  driven  back  on  the  men  who  commit 
them  and  not  be  distributed  among  the  innocent  people.  A  sound 
currency  measure  will  be  aimed  more  at  the  culprits,  and  the  effect 
will  be  to  not  distribute  those  mistakes  as  is  now  done  under  our 
present  financial  legislation. 

To  revert  to  Brooklyn,  we  had  a  lamentable  lack  of  cohesion. 
The  trust  companies  of  the  city  did  get  together  and  made  a  loan  to 
some  trust  companies  that  were  in  difficulty  by  a  merely  voluntarj^ 
plan.  We  ought  to  have  had  a  plan  by  which  bad  banking,  if  it 
existed  in  different  institutions,  had  been  found  out  in  advance; 
and  this  group  plan,  or  this  clearing-house  plan,  or  this  twenty-four- 
hour  plan  of  the  Fowler  bill,  if  I  may  so  express  it,  contemplates  the 
prevention  of  those  difficulties.  When  the  associated  bankers  realize 
that  they  are  being  taxed,  not  only  themselves  but  others  are  being 
taxed,  to  provide  for  difficulty,  and  that  the  loss  if  it  comes  will  fall 
back  on  them,  they  will  do  all  they  can  to  prevent  that  loss  in  ad- 
vance. Of  course  this  applies  in  principle  to  the  credit-note  proposi- 
tion; it  applies  in  principle  to  the  guaranty  of  bank  deposits.  I 
must  confess  that  I  did  not  come  here  t^  pecifically  to  argue  in  favor 
of  a  guaranty  of  deposits,  but  I  have  got  to  say  to  you  gentlemen 
that  in  principle  I  believe  it  to  be  ab.volutely  sound,  and  I  would  not 
argue  against  it.  I  am  thoroughly  convinced  that  it  will  not  lead  to 
unsound  banking,  because  you  must  remember  that  before  a  cent 
of  the  guaranty  fund  is  touched  the  capital  of  the  bank  must  be  wiped 
out,  its  surplus  must  be  wiped  out,  and  the  double  liabilities  of  the 
stockholders  must  be  wiped  out. 

Mr.  Powers.  Might  I  ask  you  a  question  right  there? 

Mr.  Fisher.  Certainly. 

Mr.  Powers.  Is  there  any  one  of  the  great  commercial  countries 
of  the  world  whose  principles  of  banking  you  have  referred  to  in 
which  there  is  any  guaranty  of  deposits  ? 

Mr.  Fisher.  This,  so  far  as  I  know,  is  a  new  principle,  except  as 
tried  some  years  ago  in  New  York  State  under  conditions  absolutely 
dissimilar  from  our  present  conditions,  under  conditions  when  our 
country  was  younger,  our  population  more  heterogeneous,  our  credit 
less  fixed.  We  have  passed  through  a  period  where  this  country  has 
been  swept  by  civilization  from  the  eastern  coast  to  the  Pacific  coast, 
where  credit  is  better  established  than  it  ever  w^as  before  in  the  history 
of  the  nation.  Of  course  the  strength  of  the  credit  situation  in  Scot- 
land, in  England,  in  France,  in  Germany,  in  some  degree  is  in  the 
fix;edness  of  the  population.  Our  weakness  during  our  early  history 
was  in  a  large  degree  caused  by  the  shifting  heterogeneous  character 
of  our  population.  That  is  gradually  being  eliminated,  and  we  are 
coming  to  a  point  now,  in  my  judgment,  where  such  a  scheme  based 
upon  proper  guaranties,  based  upon  internal  supervision  and  organi- 
zation under  the  group  plan,  will  work. 

Mr.  Powers,  I  understand  what  you  have  said  to  be  an  argument 
in  favor  of  adopting  the  guaranty  of  deposits  in  this  country,  and  am 
I  to  understand  what  you  have  said  as  an  assertion  that  there  are  none 
of  the  great  commercial  countries  to  whose  banking  you  have  referred 
who  have  adopted  that  principle  of  guaranteeing  deposits? 

Mr.  Fisher.  Not  so  far  as  1  know. 

37381-08 11*  •    . 


162  OXJBEBNOY  LEGISLATION. 

Mr.  PowEE,s„  That  is  the  point  I  wanted  to  get  at. 

Mr.  Fisher.  Having  outhned  what  I  beheve  to  be  sound  banking 
principle  in  this  country,  gentlemen,  I  most  heartily  urge  on  the  part 
of  this  committee  as  careful  an  analysis  of  the  princij^les  laid  down 
in  the  Fowler  measure.  I  myself  have  Yevj  carefully  analyzed  its  pro- 
visions. I  am  not  a  man  in  a  national  bank;  I  am  in  a  trust  com- 
pany. I  have  tried  to  follow  these  questions,  however,  for  the  last 
ten  years,  and  I  fail  to  see  in  the  various  provisions  any  point  of 
unsafety.  On  the  other  hand,  I  think  every  point  makes  for  safety 
in  our  different  classes  of  banking  business.  Of  course,  I  recognize 
that  some  of  these  new  principles  will  be  very  slowly  absorbed  by  the 
people  of  the  country,  and  in  the  absence  of  a  majority  opinion  for 
tliis  bill  I  believe  tliis  committee  should  report  the  bankers'  bill, 
which  at  least  starts  that  principle  of  credit  currency  wliich  is  un- 
questionably the  vital  thing  to-day,  the  most  important  thing  under 
consideration.  Tliis  country  is  growing  in  credit  power.  We  all  rec- 
ognize that  its  success  is  based  upon  credit  with  the  fundamental 
reserves  which  w^e  have,  and  we  are  growing  every  year.  Do  you 
realize  that  during  the  last  fifteen  years  we  have  taken  from  Europe 
a  net  amount  of  $300,000,000  in  gold?  We  are  growing  in  financial 
strength  and  power,  and  credit  after  all  is  the  expression  of  our  civ- 
ilization. The  panic  conies  along;  it  is  the  barbarous  instinct,  as  our 
friend  here  has  said.  The  reserve  is  an  expression  of  barbarism 
after  all,  but  we  have  these  fundamental  instincts. 

We  want  to  see  the  money  at  times.  I  am  very  glad  that  during  the 
recent  financial  stress  the  people  did  not  want  to  see  the  gold.  That 
is  a  distinct  advance.  I  had  an  Italian  who  was  going  abroad,  and 
he  came  to  get  his  money,  and  I  said:  "Do  you  not  want  the  gold?" 
And  he  said,  "No,  too  heavy;  I  want  the  notes;"  and  he  could  sell 
the  notes  in  Italy  just  as  well  as  in  the  United  States.  This  country 
stands  before  the  world  with  its  various  forms  of  money  in  the  most 
stable  form,  and  a  great  deal  has  been  accomplished  in  this  coimtry 
in  the  last  twenty  years  by  putting  this  country  on  a  sound  financial 
basis  as  to  standard  of  value. 

Mr.  Powers.  You  spoke  of  the  reserve.  Do  you  not  think  that  for 
the  ordinary  purposes  of  business  we  have  an  ample  per  capita  cur- 
rency in  the  country  ? 

^Ir.  Fisher.  We  have  at  times  too  large  a  per  capita  currency. 

]Mr.  Powers.  For  ordinary  conditions  we  have  ample? 

Mr.  Fisher.  Yes,  sir. 

Mr.  Powers.  Do  you  believe  that  the  want  of  currency  has  had 
anything  to  do  with  the  present  panic? 

Mr.  Fjsiier.  Temporary  want  of  currency.  It  was  a  superficial 
condition;  a  temporary  want  of  currency. 

Mr.  Powers.  Have  you  read  the  bankers'  bill  carefully? 

Mr.  Fisher.  Yes,  sir. 

Mr.  Powers.  With  the  existing  laws  as  they  are  to-day,  what  will 
the  bankers'  bill  be  but  an  inflation  measure? 

Mr.  Fisher.  It  will  not  be  an  inflation  measure,  for  this  reason. 

Mr.  Powers.  Well? 

Mr.  Fisher.  Inflation  has  come  to  a  great  extent  during  the  last 
ten  years  from  the  increase  of  the  fixed  bond-secured  currency.  I 
think  it  was  back  in 

Mr.  Powers.  You  do  not  understand  my  question. 


CURRENCY  LEGISLATION.  163 

Mr.  FisiiER.  I  have  not  got  to  the  end  of  the  answer  yet. 

Mr.  Powers.  Well,  go  on. 

Mr.  Fisher.  We  have  had  an  inflation,  so  called.  It  may  have 
been  a  necessary  inflation,  necessary  to  our  growing  business;  but 
our  bond-secured  currency  in  1891  was  one  hundred  and  seventy-two 
millions  at  the  low  point. 

The  Chairman.  It  was  $125,000,000  on  a  given  day  in  1891. 

Mr.  Fisher.  That  is  even  lower  than  my  data  made  it.  The  Sta- 
tistical Abstract  gives  it  at  $172,000,000.  That  has  increased  to 
$695,000,000. 

Mr.  Hayes.  It  is  $695,000,000  now. 

The  Chairman.  It  is  just  $700,000,000  now. 

Mr.  Fisher.  Yes.     There  has  been  an  inflating  tendency. 

Mr.  Powers.  You  do  not  understand  my  question.  Assuming  we 
pass  the  bankers'  bill,  and  a  panic  or  a  stringency  should  arise  and  we 
should  issue  $300,000,000  or  $500,000,000  of  emergency  currency  and 
inflate  our  currency  by  that  $500,000,000. 

Mr.  Fisher.  It  will  not  be  an  mflating  tendency  any  more  than 
these  clearing-house  credit  notes  which  I  have  shown  here.  They 
took  the  place  of  hoarded  money,  and  the  same  status  prevailed  as 
before. 

Mr.  Powers.  What  \vill  bring  this  back  to  the  bank  that  issued  it  ? 

Mr.  Fisher.  Proper  redemption  facilities. 

Mr.  Powers.  How  long  will  it  take  it  to  get  back? 

Mr,  Fisher.  I  believe  that  in  Canada  it  gets  back  in  thirty  days. 

Mr.  Powers.  The  Canadian  system  is  not  at  all  like  ours.  Under 
present  conditions,  do  you  believe  that  the  credit  money  will  come 
back— this  $500,000,000  that  they  have  issued? 

Mr.  Fisher.  It  is  going  to  come  back  just  as  soon  as  the  bank  itself 
wants  it,  in  practice,  because  the  bank  can  give  fundamental  money 
and  cancel  its  outstanding  credit. 

Mr.  Powers.  But  is  there  anything  that  prevents  that  fundamen- 
tal money  then  from  being  put  right  into  circidation  ? 

Mr.  Fisher.  I  did  not  intend 

Mr.  Powers.  Please  answer  the  question.  Is  there  anything  that 
wiU  prevent  that  fundamental  money  from  being  put  right  into  cir- 
culation or  being  deposited  with  your  bank  or  any  other  bank? 

Mr.  Fisher.  It  goes  immediately  into  circulation.  Now,  money 
takes  two  courses;  it  either  is  hoarded,  which  eliminates  it  from 
inflation,  or  it  goes  to  a  national  bank,  which  has  to  send  it  back 
again. 

Mr.  Powers.  I  do  not  understand  what  you  say. 

Mr.  Fisher.  You  issue  your  $500,000,000,  and  it  takes  one  of  two 
courses ;  it  either  goes  into  hoarding 

Mr.  Powers.  It  goes  into  circulation. 

!Mr.  Fisher.  If  it  is  in  circulation,  it  strikes  a  bank  within  a  few 
days  and  is  sent  back.  If  it  goes  into  hoiarding,  if  it  is  in  the  pockets 
of  the  people,  it  remains  there  a  week  or  two  weeks,  some  short  time, 
because  it  is  going  to  be  spent.  If  it  is  spent,  it  finds  its  way  back  to 
the  bank.  If  it  is  hoarded,  it  is  ehminated  from  the  question  of  infla- 
tion just  exactly  as  these  two  notes  I  have  here,  which  I  propose  to 
keep  as  long  as  I  live,  are  ehminated  fi'om  the  question  or  inflation. 
But  if  it  is  not  hoarded  but  is  in  circulation,  it  is  bound  to  make  its 
way  back  to  the  bank  mthin  thirty  days. 


164  CUERENCY  LEGISLATION. 

Mr.  Powers.  How  long  does  it  take  our  national-bank  bills  to  get 
back  into  the  banks?     \A  hat  is  the  average  life  of  one  of  them? 

^Ir.  Fisher.  The  average  life  is  now  about  seven  hundred  days, 
and  for  this  reason,  if  I  may  qualify  it 

Mr.  Powers.  Well,  this  currency  would  be  as  good  as  national-bank 
bills;  otherwise  it  would  cause  a  contraction. 

Mr.  Fisher.  Yes. 

Mr.  Powers.  "What  reason  would  there  be  why  the  trust  companies 
or  savings  banks,  or  any  other  mstitutions,  should  send  this  money 
back  instead  of  paj^ing  it  out  over  their  counters,  as  they  do  with  the 
present  bills  ? 

Mr.  Fisher.  I  am  mcHned  to  say  that  the  provisions  of  the  Fowler 
bUl 

Mr.  Powers.  I  am  talking  about  the  national  banking  law. 

Mr.  Fisher.  I  will  agree  with  you  that  if  under  the  Fowler  bill  or 
the  banlver's  bill  there  is  an  issue  of  credit  currency  and  it  goes  into  the 
savings  banks  of  the  country  or  into  the  other  institutions  of  the  coun- 
try and  is  used  as  reserve  to  that  extent  it  would  cause  inflation. 

Mr.  Powers.  I  asked  tliis  same  question  of  Secretary  Shaw  on  this 
same  bill,  and  he  said  he  thought  a  very  small  amount  would  get  back, 
perhaps  10  per  cent,  the  first  year,  and  there  was  no  reason  for  bringing 
it  back  any  faster  than  the  other,  and  he  admitted  that  it  would  be 
largel}^  an  inflation  measure,  and  it  seems  to  me  that  the  present 
bankers'  bill  is  an  inflation  measure  pure  and  simple,  unless  you 
change  some  of  the  statutes  in  relation  to  currency. 

Mr.  Fisher.  I  will  agree  with  you  that  so  far  as  it  is  used  as  reserve, 
which  is  unsound  and  illogical  from  a  banking  standpoint,  it  will  be  an 
inflation  measure. 

Mr.  Powers.  I  am  opposed  to  any  inflation  of  the  currency  except  in 
times  of  emergency  and  crisis,  and  then  it  must  go  back  as  soon  as  it 
has  served  its  purpose. 

Mr.  Fisher.  You  understand  that  I  am  favoring  the  principles  of 
the  Fowler  bill  first,  and  the  principles  of  the  bankers'  bill  second. 

Mr.  Weems.  How  about  the  notes  under  the  Fowler  bill;  would  they 
result  in  inflation  if  they  D;et  into  reserve  hands  ? 

Mr.  Fisher.  No,  sir;  because  if  the  F'owler  bill  passes,  its  provi- 
sions are  such  that  there  will  be  none  under  the  national  law.  You 
can  not  have  national  institutions  under  different  regulations,  com- 
peting with  each  other  on  diflerent  bases,  and  I  am  convinced  if 
national  banks  are  given  the  trust-compan}''  principle  in  their  man- 
agement, and  are  given  tliis  privilege  of  issuing  emergency  or  funda- 
mental currency,  whether  it  be  emergency  or  not,  that  it  would  be 
very  inexpedient  for  a  trust  company  to  refi'ain  from  organizing 
under  national  banking  law,  and  if  they  do  organize  under  national 
banking  law,  inasmuch  as  savings  banks  practically  carr}"  no  reserve, 
then  the  redemption  feature  will  be  used  all  over  the  country  as  a 
matter  of  habit,  and  the  notes  will  then  expand  and  contract,  follow- 
ing the  course  of  trade,  which  is  after  all  what  we  want  in  banking, 
as  exemplified  in  the  experience  in  other  countries. 

The  Chairman.  Then  there  is  a  tax  of  10  per  cent  on  every  dollar 
of  it  that  they  put  in  tlie  reserves,  which  would  al)solutely  prohibit 
them  from  keeping  a  shigle  note  ovt^rnight? 

Mr.  Weems.  Do  I  understand,  then,  that  you  favor  those  provi- 
sions of  the  Fowler  ))ill  which  authorize  a  national  bank  to  act  as  a 
trustee  ? 


CURRENCY  LEGISLATION,  165 

Mr.  Fisher.  I  did  not  come  here  to  favor  the  savings-banks  pro- 
vision or  the  trust-company  provision,  but  I  fail  to  sec  how  I  could 
logically  object  to  those  provisions.  Take  our  own  specific  case. 
We  are  a  trust  company  which  docs  a  commercial  business  as  well  as 
a  trust  business.  We  carry,  of  our  own  volition,  at  least  10  per  cent 
in  actual  reserve.  We  probably  will  be  compelled  to  carry  15  per 
cent  under  State  law  by  spring  or  by  the  1st  of  January,  1909.  We 
have  no  objection  to  this.  We  want  to  be  just  as  safe  and  secure  as 
the  law  contemplates,  or  if  the  law  does  not  contemplate  security 
enough  w^e  prefer  to  take  our  own  initiative.  The  law  says  5  per 
cent  in  our  case,  and  we  have  always  carried  10  per  cent.  The  na- 
tional banks  in  Brooklyn,  which  is  not  a  reserve  center,  as  is  Man- 
hattan, are  required  to  carry  only  12i  per  cent  in  cash;  consec(uently, 
the  national  law  is  just  as  easy,  and,  in  fact,  more  easy  than  the  State 
law  will  be,  so  that  should  we  organize  under  the  national  law  we 
would  not  only  have  the  trust  privilege  which  we  now  have,  assuming 
this  bill  to  pass,  but  we  would  also  have  the  o]:)portunity,  in  times  of 
emergency,  if  we  desire,  or  in  order  to  satisfy  ordinary  business 
demands,  of  issuing  our  credit  currency  on  what  I  believe  to  be  a 
sound  basis.  I  would  like  to  know  of  any  argument  against  trust 
companies  assenting  to  this  provision  of  the  bill. 

Mr.  McKiNNEY.  Do  you  not  believe  that  in  the  case  of  savings 
banks  it  is  a  wise  provision  that  gives  the  bank  the  right  to  demand  a 
certain  length  of  time  of  notice  for  the  withdrawal  of  funds? 

Mr.  FisiiER.  Certainly. 

Mr.  McKiNNEY.  Do  you  not  want  to  add  this  to  the  national-bank 
provisions  ? 

Mr.  Fisher.  I  suppose  that  if  you  proposed  to  inject  the  savings 
bank  plan  into  your  national  legislation  there  should  be  the  same 
safeguards  thro\\Ti  around  the  savings  bank  which  the  States  now 
have.  Looking  at  it  from  the  savings  bank  standpoint,  we  have  to 
realize  that  while  New  York  and  New  England  laws  look  after  these 
provisions,  most  of  the  savings  bank  business  of  the  country  is  done 
for  profit,  and  where  it  is  done  for  profit  it  is  usually  on  a  less  sound 
basis  than  where  it  is  done  on  the  philanthropic  principle.  We  call 
the  savings  banks  in  New  York  eleemosynary  institutions.  In  the 
Seaman's  Savings  Bank  you  can  not  deposit  over  8500,  and  in  others 
you  can  not  deposit  over  .S2,000,  and  in  some  not  over  .53,000.  It 
may  be  wise  to  make  some  provisions  to  govern  this  class  of  business. 
The  bill  provides,  of  course,  that  the  group  committee  shall  make 
such  provisions,  and  I  am  not  prepared  to  say  whether  I  would  abso- 
lutely leave  it  to  them  or  not.  That  would,  of  course,  be  a  question 
for  consideration. 

Mr.  McKiNNEY.  In  regard  to  the  bankers'  bill,  that  provides  in 
case  there  is  a  desire  on  the  part  of  a  bank  to  withdraw  its  emergency 
currency  it  may  do  so,  and  by  depositing  with  the  Treasurer  of  the 
United  States  lawfid  money  to  the  amount  of  the  reduction  desired. 

Mr.  Fisher.  Yes,  sir. 

The  Chairman.  How  is  that? 

Mr.  McKiNNEY.  I  was  just  stating  that  clause  of  the  bankers' 
bill  which  provided  for  the  redemption  of  this  currency,  this  emer- 
gency currency,  this  credit  currency,  the  provision  being  that  the 
bank  could  deposit  lawful  money  with  the  Treasurer  of  the  United 
States,  and  in  that  way  be  out  from  under  the  operation  of  the  tax 


166  CURRENCY   LEGISLATION. 

on  that  currency,  the  notes  to  be  redeemed  by  the  Treasurer  as 
presented.  In  the  ordinary  operation  of  the  business  of  the  country, 
after  a  deposit  of  that  kind  has  been  made  with  the  Treasurer,  cer- 
tainly those  notes,  or  a  large  part  of  them,  would  sooner  or  later 
reach  the  Treasury,  and  those  notes  would  not  be  paid  out  again  by 
the  Treasury. 

Mr.  Powers.  They  would  average  about  two  years. 

Mr.  McKiNNEY.  They  certamly  would  not  be  ])aid  out  again  by 
the  Treasury,  and  that  money  could  not  help  being  impounded, 
because  the  Treasury  could  not  safely  pay  that  money  out  in  any 
other  way.     It  is  held  there  for  that  purpose. 

The  Chairman.  They  are  doing  that  to-day.  All  the  national- 
bank  notes  are  redeemed  the  same  way. 

Mr.  Waldo.  If  $100,000  in  currency  is  redeemed  by  the  deposit 
of  lawful  reserves  to-day,  the  Treasury  does  not  pay  that  out  at  once. 

The  Chairman.  It  is  paid  right  into  the  current  accoimt. 

Mr.  Waldo.  So  that  it  is  purely  an  inflation,  since  the  reserves 
deposited  are  paid  out  again  at  once. 

Mr.  Weeks.  It  it  is  easy  enough  to  provide  to  prevent  their  being 
paid  out.  If  there  was  any  doubt  about  the  redemption  of  these  notes 
it  ought  to  be  provided  for. 

The  Chairman.  Suppose  you  issue  $400,000,000  of  that  currency, 
and  then  having,  put  that  into  circulation,  you  go  and  deposit  $400,- 
000,000  of  gold,  and  they  impound  it,  and  leave  $400,000,000  of  this 
credit  out,  is  that  wise  legislation? 

Mr.  McKiNNEY.  I  do  not  tliink  that  would  be  the  operation  of  this 
legislation. 

The  Chairman.  What  would  it  be?  You  can  not  provide  lawful 
money  to  redeem  them. 

Mr.  McKiNNEY.  Certainly  my  notes,  as  they  come  in,  would  be  can- 
celed. 

The  Chairman.  They  do  not  come  in;  that  is  the  trouble.  Did  you 
have  a  chance  to  answer  JVIr.  McKinney's  question  ? 

Mr.  Fisher.  I  think  that  he  worked  it  out  for  himself. 

JVIr.  Crawford.  I  would  like  to  ask  3^ou  what  would  be  the  effect 
upon  State  banks  and  trust  companies  if  the  national-bank  issues 
were  taxed? 

Mr.  Fisher.  If  the  national-bank  issues  were  taxed? 

Mr.  Crawford.  If  the  deposits  were  taxed — were  guaranteed? 

]\Ir.  Fisher.  That  is  illustrated  very  well  by  what  is  right  before 
us  to-day.  Oklahoma,  as  I  understand  it,  has  determined  to  secure 
the  deposits  in  its  banks  by  a  guaranty  fund.  This  has  brought  its 
banks  in  competition  with  the  banks  of  other  States.  Kansas,  I 
think,  is  also  considering  whether  it  had  better  not,  in  competition, 
do  the  same  thing,  and  1  think  you  have  got  the  germ  started  which, 
of  its  own  volition,  is  going  to  travel  all  over  the  country,  and  it 
might  be  better,  to  save  confusion,  to  consider  very  seriously  whether 
you  had  better  not  recommend  this  principle  to  the  National  Gov- 
ernment. Then,  having  adopted  that  for  the  national  banks,  it  goes 
without  saying  that  the  State  l)anks  would  have  to  fall  in  line,  either 
through  State  legislation  or  through  incorporating  under  national  law. 

Mr.  \Veeks.  Do  you  not  think  that  germ  is  a  microbe  that  might 
be  dangerous  to  the  comnmnity? 


OUEEENCY  LEGISLATION.  167 

Mr.  Fisher.  I  tliink  we  liave  reached  tliat  status  in  our  Govern- 
ment's credit  where  the  danger  is  at  tlie  very  minimum.  Take  it 
during  the  last  panic,  as  an  example.  In  a  general  way — -perhaps 
the  figures  liave  not  been  definitely  collated — we  w^ill  say  for  argu- 
ment there  might  have  been  300  banks  and  trust  companies  that 
have  suspended,  tliroughout  the  United  States.  We  all  know  that 
of  the  deposits  in  national  banks  tlie  anioimt  of  loss  to  depositors 
will  be  very  small;  a  very  small  percentage.  Take  it  at  the  very 
worst,  assume  for  tlie  sake  of  argument  that  they  lose  25  per  cent 
of  the  deposits  in  those  300  banks.  Tliis  is  purely  hypothetical,  and 
is  not  based  upon  figures.  Of  course  you  will  readily  see  that  the 
Fowler  measure  would  be  more  tlian  ample  to  provide  for  loss  in 
those  cases.  Take  our  Brooklyn  institutions.  I  believe  in  a  gen- 
eral way  they  will  pay  very  nearly  one  hundred  cents  on  the  dollar, 
after  wiping  out  the  capital  and  surpluses  of  the  banks.  The  First 
National  Bank,  the  only  national  bank  that  has  failed,  will  open  on 
the  10th  of  February  without  a  loss  to  a  depositor,  perhaps  with 
some  little  impairment  of  its  surplus  and  capital.  We  may  also  take 
as  an  illustration  the  Bank  of  North  America.  I  doubt  if  the  de- 
positors of  the  Bank  of  North  America  will  lose  a  penny.  I  doubt 
if  the  depositors  of  the  New  Amsterdam  Bank  will  lose  anything.  It 
will  be  found,  I  think,  that  the  amount  of  loss  that  \\dll  come  to  tliis 
country  tlirough  the  losses  of  depositors  diu'ing  the  last  six  months, 
or  even  during  the  next  six  months,  will  be  reduced  to  a  very  small 
amount. 

Mr.  Weeks.  Is  not  the  proposition  to  tax  the  wise  and  conserva- 
tive man  to  provide  a  fund  to  take  care  of  the  improvident  an  un- 
wisdom and  abhorrent  to  every  business  principle? 

Mr.  Fisher.  It  would  seem  abhorrent,  as  you  state  it,  but  if  you 
wall  analyze  the  bill,  you  will  find  that  before  the  improvident  man's 
bank  is  taxed  or  can  lose  anything  the  man  has  got  to  lose  all  his 
holdings;  he  has  got  to  lose  all  liis  surplus  and  capital  and  he  has  got 
to  lose  his  double  liability,  and  he  has  every  incentive  under  that 
bill  which  he  has  now  for  good  banking,  with  the  additional  super- 
vision, wliicli  it  proposes,  to  correct  error,  which  is  vital  to  tliis  whole 
question. 

Mr.  Weeks.  That  is  true,  but  a  director  may  own  only  ten  shares 
of  stock,  and  he  may  be  interested  in  a  company  whose  note  is  not 
good,  and  he  may  cause  the  note  of  that  company  to  be  accepted  for 
fifty  or  one  hundred  times  that  amount,  so  that  the  loss  he  would 
make  on  liis  stock  would  be  comparatively  nominal  when  compared 
with  the  profit  which  he  might  make  in  this  company  if  the  bank 
discounted  the  note,  and  consequently  he  would  be  much  more  in- 
terested in  the  company  getting  the  loan  tlirough,  in  getting  the  note 
discounted,  without  regard  to  the  loss  on  his  stock. 

Mr.  Fisher.  X  think  you  have  touched  another  principle  that  ought 
to  be  promulgated  in  banking — that  is,  a  clearing  lioiisc  of  credit,  and 
that  could  be  provided  by  these  local  associations.  The  banker  to- 
day buys  the  paper  of  an  institution  because  he  thinks  it  is  good.  The 
credit  reports  say  the  concern  or  individual  is  worth  so  much  money. 
He  does  not  know  how  many  of  those  notes  may  be  bought  by  ])ankers 
in  New  Orleans  or  in  San  Francisco,  or  in  any  other  city.  The  banker 
intelligently  bu^dng  paper  ought  to  know  how  much  of  that  paper  is 
outstanding.     The  credits  of  the  man  vou  distrust  shoidd  be  checked 


168  CURRENCY   LEGISLATION. 

by  the  clearing  house  of  credits;  and  that  would  do  more  for  sound 
banking  in  this  country  than  anything  else. 

Mr.  Weeks.  I  agree  with  you ;  but  you  spoke  about  the  cooperative 
plan  of  working  together  in  a  community.  Do  you  mean  by  that 
there  should  be  a  committee  that  should  go  into  the  different  banks 
and  see  how  they  are  managing  their  banks  ? 

Mr.  Fisher.  Theoretically  the  New  York  Clearing  House  has  super- 
vision over  each  one  of  its  subdivisions,  and  during  the  last  three 
months  the  clearing-house  committee  has  gone  into  and  investigated 
the  affairs  of  specific  banks  to  determine  whether  or  not  they  should 
be  given  assistance.  I  believe  that  that  practice  should  be  extended, 
of  going  into  things  thoroughly. 

Mr.  Weeks.  Then  would  there  not  be  danger  of  those  men  who 
made  these  examinations  acquiring  a  knowledge  of  the  business  of 
their  rivals  wliich  would  enable  them  to  get  their  deposits  away  from 
them  ? 

Mr.  Fisher.  Not  the  type  of  men  you  would  choose  for  this. 

Mr.  Weeks.  I  disagree  with  you  entirely.  I  do  not  believe  there 
is  any  living  man  who  sees  a  good  deposit  in  another  bank  and  sees 
a  method  of  getting  it  who  does  not  sooner  or  later  go  for  that 
deposit. 

Mr.  Fisher.  Then  put  it  into  the  hands  of  certified  accountants. 
There  are  many  other  ways  of  handling  that. 

The  Chairman.  They  have  precisely  this  thing  in  Chicago  now,  so 
that  every  bank  that  clears  through  the  clearing  house  of  Chicago  is 
examined.  That  is  the  rule  in  operation  to-day,  and  it  is  the  rule  in 
Canada. 

Mr.  Fisher.  Of  course  you  would  hate  to  have  a  rival  banker  come 
in  to-day  in  your  institution  and  examine  into  your  business,  but 
when  it  became  a  matter  of  habit  it  would  be  all  right. 

The  Chairman.  They  do  not  go  in  personally ;  they  do  this  through 
examiners. 

Mr.  Fisher.  There  are  many  ways  of  doing  it. 

Mr.  Weeks.  Do  you  think  that  if  this  Congress  did  not  pass  any 
currency  legislation  whatever,  it  would  be  a  serious  menace,  or  any 
menace  at  all,  to  the  country? 

Mr.  Fisher.  I  should  not  call  it  a  menace.  I  should  say  that  you 
would  continue  fundamentally  bad  banking,  w^hich  shifts  fimds  from 
the  East  to  the  West  every  year,  causing  more  dilficulty  to  individ- 
uals than  you  realize.  Perhaps  there  is  nothing  that  you  would  call 
a  menace,  and  yet  this  unsatisfactory  fluctuation  of  funds,  illogical, 
not  based  upon  the  expansion  or  contraction  of  business,  is  working 
havoc  in  small  ways  as  a  cycle  of  business  reaches  its  culmination. 

Mr.  Weeks.  You  do  not  see  any  prospects  of  scarcity  of  currency 
now,  do  you? 

Mr.  Fisher.  We  have  dilliculty  in  getting  rid  of  .currency  now, 
whereas  three  months  ago  we  could  not  get  any  anywhere.  But 
that  is  not  the  principle  we  are  discussing.  We  are  discussing  this 
matter  from  a  broad  standpoint,  to  get  rid  of  these  dilliculties  for 
all  time.  Here  is  the  num  in  the  theater,  in  the  case  which  Mr. 
Lovering  spoke  of  this  morning,  who  gets  up  and  says  "sit  down," 
and  the  ])e()ple  sit  down,  and  thus  stops  the  panic.  The  dilliculty 
is  that  the  ])nblic  mind  goes  from  one  extreme  to  another,  and  does 
not  think  along  logical  lines.     Ninety  days  ago,  if  you  gentlemen 


CURKENCY  LEGISLATION.  169 

had  been  in  this  room,  with  the  pressure  of  the  whole  country 
behind  you,  and  had  been  conijiehed  to  bring  forth  a  measure,  you 
would  have  had  a  measure.  To-day  you  have  a  plethora,  a  redun- 
dancy of  currency,  and  now  you  say,  "Go  slowly;  it  is  not  necessary 
to  do  anything  now."  I  say  this  is  the  time  to  act,  because  you 
have  a  much  better  chance  now  than  you  will  have  next  year,  and 
now  is  the  time  to  act,  and  if  you  make  mistakes,  you  can  correct 
them  the  next  year,  and  the  year  following  that. 

Mr.  Waldo.  Is  not  this  the  trouble,  that  unless  some  action  is  taken 
now,  immediately  following  a  great  financial  crisis,  it  is  not  likely  that 
any  fundamental  change  in  the  currency  system  will  take  place  until 
the  next  trouble  arises? 

Mr.  Fisher.  Yes,  sir.  I  say  now  is  the  psychological  time  to  do 
this.  Each  year  you  postpone  action  the  less  likely  you  are,  in  my 
opinion,  to  have  good  results. 

]\lr.  Waldo.  The  inertia  that  attaches  to  any  great  currency  system 
is  such  that  it  is  almost  impossible  to  change  it  unless  there  is  present 
trouble. 

Mr.  Fisher.  The  most  important  point,  I  think,  and  I  will  close  with 
that,  is  this:  What  you  need  to-day  is  courage. 

Mr.  McKiNNEY.  Let  me  ask  you  one  further  question :  As  I  under- 
stand it,  the  issue  of  notes  under  the  Fowler  bill  is  patterned  after  the 
Canadian  system  ? 

Mr.  Fisher.  Yes;  in  effect. 

Mr.  McKinney.  The  Canadian  system  has  no  general  guaranty  for 
deposits  ? 

Mr.  Fisher.  No. 

Mr.  McKinney.  So  that  in  that  regard  the  Fowder  bill  is  entirel}^  a 
new  measure? 

Mr.  Fisher.  Yes,  sir. 

Mr.  McKinney.  An  untried  measure  for  general  adoption  in  this 
country  ? 

Mr.  Fisher.  Yes. 

Mr.  McKinney.  Do  you  believe  that  this  is  the  time  to  take  up 
such  drastic  changes  as  would  be  involved  by  the  Fowder  bill  in  all 
those  different  changes'? 

Mr.  Fisher.  To  revert  to  that  Canadian  system,  it  is  on  such  a 
sound  basis  because  of  its  credit  currency  that  there  has  not  been  a 
single  loss  in  notes.  If  the  Canadian  system  had  contemplated  ten 
or  twenty  years  ago  a  guaranty  of  deposits,  there  wovdd  not  have 
been  a  ripple  of  excitement  in  the  results  that  followed,  because  the 
losses  in  deposits  have  been  inconsiderable;  so  that  I  believe  per- 
sonally that  if  you  instituted  this  credit  currency  principle,  with 
your  currency  and  your  deposits  correlating,  and  with  vour  currency 
and  with  your  group  plan,  your  business  methods  will  be  on  such  a 
sound  basis  that  I  personally  l)elieve  that  the  people  of  the  country 
need  not  worry  as  to  whether  their  deposits  are  guaranteed  or  not.  I 
did  not  come  here  to  argue  in  favor  of  the  guaranty  principle,  but  to 
me  it  is  so  innocent  and  so  harmless  that  I  can  not  argue  against  it. 

The  Chairman.  Do  you  not  think  that  the  ])eneficent  results  of  the 
prevention  of  panics  and  the  stopping  of  hoarding  would  be  of  im- 
measurable value  ? 

^ir.  Fisher.  I  think  it  should  cut  a  panic  in  half. 


170  OUBRENCY  LEGISLATION. 

Mr.  Hayes.  Every  time  one  of  those  clearing-house  certificates 
was  issued  within  the  last  thirty  days  it  was  an  indication  that  the 
bank  wliich  issued  it  was  in  distress? 

Mr.  Fisher.  Not  necessarily  an  individual  bank,  but  the  banks 
collectively. 

^Ir.  Hayes.  And  yet  in  spite  of  that  condition  and  in  spite  of  the 
fact  that  those  clearing-house  certificates  were  issued  \\dthout  the  pale 
of  the  law  entirely,  they  passed  practically  at  par? 

Mr.  Fisher.  Absolutely. 

Mr.  Hayes.  In  the  community? 

Mr.  Fisher.  Yes;  absolutely. 

Mr.  Hayes.  In  your  judgment  is  not  that  a  concrete  illustration  of 
what  this  committee  and  the  Congress  of  the  United  States  should  do 
in  regard  to  the  currency?  But  they  did  take  these  certificates  at 
par. 

Mr.  Fisher.  Yes;  and  the  bill  provides  that  they  shaU  take  this 
currency  at  par. 

Mr.  Powers.  I  think  that  the  committee  feel  that  they  have  been 
very  much  entertained  and  perhaps  enhghtened  by  ^Ir.  Fisher's 
statement,  and  I  move  a  vote  of  thanks  to  him. 

(The  motion  was  seconded;  and  the  question  being  taken,  thi 
motion  was  agreed  to.) 


Committee  on  Banking  and  Currency, 

House  of  Representatives, 

Wednesday,  February  12,  1908. 
The  committee  was  called  to  order  at  11a.  m.,  Hon.  G.  D.  McCreary 
in  the  chair. 

STATEMENT  OF  MR.  MORETON  FREWEN,  OF  ENGLAND. 

The  Chairman.  Will  you  kindly  give  your  name  and  address? 

Mr.  Frewen.  Moreton  Frewen,  Brede  Place,  Sussex. 

Mr.  Chairman  and  gentlemen  of  the  committee,  Mr.  Burton  of  your 
committee  suggested  that  I  should  give  evidence  here,  and  I  am  sorry 
that  Mr.  Burton  is  unable  to  be  present  to-day.  I  had  mentioned  to 
Mr.  Burton  that  I  was  anxious  to  secure  consideration  at  Washington 
for  the  currency  proposal  made  in  1891  by  the  late  Lord  Goschen.  In 
1891  ]\Ir.  Goschen  was  chancellor  of  the  exchequer  during  the  Baring 
crisis.  Perhaps  Mr.  Goschen  studied  this  question  with  the  greater 
earnestness  because  he  may  have  regarded  himself,  however  inno- 
cently, as  to  some  extent  responsible  for  the  Baring  crisis.  He  had 
refunded  our  debt  at  a  rate  of  interest  so  very  low  that  adventurous 
investors  had  removed  masses  of  money  to  foreign  and  speculative 
investments,  and  particularly  to  the  Argentine  Republic. 

Thus  we  had  an  orgie  of  speculation,  and  as  a  result  a  serious  crisis 
in  the  city.  After  a  period  of  careful  consideration,  Mr.  Goschen 
went  down  to  Leeds  and  made  certain  proposals  to  the  Leeds  Chamber 
of  Commerce  which  are  of  value  to  your  community  to-day  because 
the  conditions  of  your  recent  crisis  are  not  altogether  dissimilar. 
What  Mr.  Goschen  proposed  was  this — I  need  not  remind  you  that 
Mr.  Goschen  was  of  the  straitest  sect,  a  monometallist,  and  was  the 
author  of  the  standard  work  on  the  foreign  exchanges;  he  was  speaking, 
too,  with  all  the  responsibility  attaching  to  his  high  official  position. 
He  desired  a  large  gold  reserve  supplementary^  to  the  reserve  of  the 
Bank  of  England,  wdiich  he  declared  was  entirely  inadequate;  and  to 
obtain  this,  ho  said,  was  only  possible  if  he  could  get  out  of  the  pockets 
and  tills  of  our  people  a  portion  of  the  very  large  amount  of  gold  or 
notes  which  we  habitually  carry.  How  was  he  to  pay  for  this  gold 
which  he  proposed  to  subtract?  Not  with  gold,  clearly,  nor  yet  with 
legal  tenders,  such  as  ''pound  notes,"  for  that  way  lay  inflation, 
hio;her  prices,  and  the  expulsion  of  gold  through  the  exchanges. 
What  he  proposed  was  to  buy  the  sovereigns  and  half  sovereigns  he 
needed  with  small  10-shilling  notes  secured  by  silver,  the  legal  tender 
of  these  notes  to  be  limited  to  40  shillings  only. 

Particularly  he  aimed  at  withdrawing  in  this  way  the  majority  of 
the  60,000,000  half  sovereigns  current.  This  coin  is  a  wasteful  coin 
with  a  large  friction  surface.  Lie  knew  that  he  could  not  transpose 
shillings  or  half  crowns  for  the  gold  we  carr\-  in  our  pockets;  we  will 

171 


172  CUKRENCy    LEGISLATION. 

not  earn'  more  silver  token  money  than  now  because  of  its  bulk,  but 
he  held  that  we  would  carry  a  large  amount  of  silver  in  the  shape  of 
small  "token  notes."  He  thought  that  these  notes  would  supply  a 
real  want;  they  would  be  convenient  for  postal  remittances,  for  pay- 
ing weekly  wages,  for  shopping,  and  railway  fares. 

The  legal  tender  of  these  notes,  and  this  is  all  important,  was  to  be 
hmited,  just  as  fi'actional  silver  currency  is  limited,  to  40  shillings 
($10).  The  proposal  of  Mr.  Goschen  was  opposed  b}"  the  bimetallist 
members  of  the  House  of  Commons.  Prices  were  at  that  time  falling 
fast  because  of  the  shortage  in  the  world's  gold  supplies,  and  here  was 
the  chancellor  of  the  exchequer  proposing  to  contract  our  full  legal 
tender  currency  by  thirty  millions  and  substitute  a  "token  note" 
currency,  which,  as  he  admitted,  would  not  in  anyway  support  prices. 
It  was  then  a  contraction  proposal;  it  is  to-day  a  contraction  pro- 

gosal,  and  as  such  may  be  looked  askance  at  by  some  of  my  silver 
■lends.  But  to-da}^  the  world's  currencies  are  really  becoming 
inflated,  owing  to  the  great  mass  of  the  new  gold,  and  silver  men  are 
likeh'  to  support  the  Goschen  plan  for  the  security  a  great  central 
gold  reserve  will  bring  to  finance,  for  the  employment  it  ^\-ill  give  to 
silver  in  securing  these  small  notes  and  for  the  great  advance  in  the 
rates  of  exchange  Avith  Asia,  which  will  result  from  a  demand  dis- 
tributed over  ten  or  twenty  years  for  five  or  six  hundred  million 
ounces  of  silver  with  which  to  secure  these  notes.  We  took  a  deputa- 
tion to  Mr.  Goschen  at  the  treasur}'  and  satisfied  him  that  with  the 
opposition  of  the  bimetallic  party  in  Parliament  it  would  be  difficult 
or  impossible  for  him  to  secure  his  plan  of  currenc}"  reform.  He 
accordingh^  dropped  it,  though,  as  I  happen  to  know,  with  very 
great  regret;  for  it  was  a  sound,  clever  financial  expedient,  and  one 
well  worth  both  ^^our  consideration,  and  our  consideration  in  England 
under  the  altered  circumstances  of  these  days. 

To-day  prices  the  world  over  are  rising  so  rapidly  because  of  the 
enormous  output  of  gold  that  I  do  not  think  any  of  my  silver  friends 
would  object  to  a  slight  restriction  of  the  currenc}^  if  it  gave  an  added 
security  to  the  banking  and  financial  business  of  the  nation.  I  pro- 
pose, then,  to  draw  your  attention  to  the  applicabilit}^  of  the  Goschen 
plan  to  this  country.  You  would  proceed  to  purchase  monthly  say 
two  or  five  or  ten  milHons  of  your  outstanding  gold  certificates,  pay- 
ing for  them  with  the  small  "''token  notes"  secured  by  silver,  their 
legal  tender  hmited  to  SIO.  The  mere  fact  that  you  had  started  on 
this  road  to  accumulate  500,000,000  of  ''free  gold"  to  be  at  the  dis- 
posal of  the  Secretary  of  the  Treasury  would  of  itself  go  far  to  estab- 
lish confidence  here  and  abroad.  Thus  the  foreign  capital,  now 
alarmed,  would  soon  revert  to  American  investments. 

Tlien  1  would  like  to  say  a  few  words  as  to  that  valuable  national 
industry,  silver  mining,  though  I  know  that  here  I  am  on  delicate 
ground.  The  large  (piantity  of  silver  required  to  secure  these  notes 
would  make  silver  ihinin^  active  and  profitable  for  many  jears  to 
come.  Your  present  production  of  silver  is  about  50,000,000  ounces 
a  year  and  these  propo.sed  small  notes  would  require  during  the  next 
ten  or  twenty  vears  500,000,000  ounces.  When  I  was  at  Broken 
Hill,  in  Australia,  a  few  years  since  I  got  some  figures  from  Mr. 
Coghlan,  the  governiiu^nt  statistician,  which  go  to  point  the  great 
value  of  silver  mining.     In  that  colony  ofj^New  South  Wales  12,000 


CURRENCY    LP:GISLATI()N.  173 

of  its  population  aro  employed  in  connection  with  the  Broken^Hill 
silver-lead  mines,   and    there    are    160,000    engaged   in    agriculture 
The  annual  wealth  product  of  the  12,000  people  is  about  equal  to 
the  annual  wealth  pro(hictof  the  160,000  people.     I  will  include  the 
official  table  in  my  evidence. " 

It  is  not  that  silver  mining  is  extremely  profitable,  })ut  the  employ- 
ment given  by  the  miner  to  affiliated  industries — timber,  chemicals, 
fluxes,  machinery,  and  a  dozen  other  industries — is  very  great.  A 
single  mine  at  Broken  Hill  when  I  was  there  was  putting  underground 
every  day  American  timber  brought  from  Puget  Sound,  of  the  value 
of  $2,500.  I  lielieve  an  in()uiry  would  elicit  that  a  single  silver 
camp,  such  as  Park  City,  Utah,  or  Leadville  in  earlier  da3's  produces 
more  wealth  annually  than  ten  times  the  number  of  its  population 
employed  in  agriculture,  say  in  Nebraska  or  Dakota.  I  don't  for  a 
moment  suggest  that  you  should  jeopardize  the  security  of  your 
currency  to  foster  your  silver  mines,  but  I  do  think  that  if  you  can 
secure  a  central  gold  reserve  at  an  inappreciable  cost,  thus  securing 
you  against  a  recurrence  of  crises,  otherwise  inevitable,  and  if  you 
can  wdiile  doing  this  give  added  prosperity  to  your  Mountain  States 
the  Goschen  plan  gets  an  added  indorsement  here,  for  in  England  we 
have  no  silver  niines  to  foster. 

The  third  point  in  connection  with  Mr.  Goschen's  proposal  and 
the  one  which  seems  to  me  of  by  far  the  greatest  importance  to  your 
country  is  this:  If  you  will  make  an  issue  of  small  nonlegal-tender 
notes  to  buy  up  your  outstanding  gold  certificates  your  demand  for 
silver  to  put  behind  these  notes  will  raise  the  exchange  rates  with  all 
Asia,  and  that  to  my  mind  is  the  most  important  feature  of  the  silver 
question,  for  us  indeed  in  England,  to  some  extent,  but  more  especi- 
ally for  3^ou  here.  You  are  building  the  Panama  Canal;  you  are 
looking  forward  to  a  greatly  increased  trade  with  Asia.  But  you 
can  not  sell  your  goods  to  Asia  if  you  are  going  to  keep  the  silver 
exchanges  with  Asia  as  low  as  to-day.  I  have  wandered  much  in  Asia 
studying  this  question  during  the  last  twenty  years.  The  merchants 
of  India  wdio  were  exporting  wheat,  cotton,  rice,  and  other  staples 
which  compete  in  the  markets  of  Europe  wath  similar  American 
exports — the  condition  wdiich  they  watched  in  their  business  opera- 
tions was  the  rise  or  fall  of  the  exchange — in  other  words,  the  rise  or 
fall  in  the  gold  price  of  silver  bullion.  Every  fall  in  the  price  of  silver 
bullion  subsidizes  the  exports  of  Asia  and,  on  the  other  hand,  operates 
just  as  an  increased  tariff  would  to  check  imports  into  all  Asia. 
Everything  that  Asia  produces,  everything  that  India  produces,  is 
produced  upon  a  silver,  or  a  silver  rupee,  basis  and  with  every  fall 
in  the  gold  price  of  silver  they  receive  more  of  their  silver  money 

<^  New  South  Wales. 


Industry. 

Popula- 
tion. 

Per  capita 
production 

Silver-lead 

12,000 
5,060 

£256 

Tin 

25 

Coal 

25, 070 

47 

Agriculture.                  

160,000                     21 

Gold 

16, 000                     24 

174  CURKENCY    LEGISLATION. 

in  exchange  for  what  they  export.  Formerly  if  India  sold  wheat 
for  a  sovereign  in  the  London  market  that  sovereign  exchanged  for 
10  rupees.  To-day  a  sovereign  purchases  for  the  Indian  exporter 
15  rupees;  if  the  Indian  mints  had  not  been  closed  to  free  coinage 
in  1893  the  exchange  to-day  would  be  not  15  but  22  rupees  per 
sovereign.  Now  I  am  aware  that  it  is  commonly  believed  here  that 
just  as  the  gold  price  of  the  rupee  falls  so  also  the  value,  the  purchas- 
ing power,  of  the  rupee  in  India  falls,  but  this  is  not  the  case. 

The  official  '"index  numbers"  of  silver  prices  prepared  by  the 
Indian  government  show  that  the  rupee  is  worth  to-day  to  pay  labor 
or  to  purchase  native  goods  in  India  actually  more  than  it  was  when 
it  exchanged  at  10  to  the  sovereign.  Two  currency  commissions  have 
emphasized  tliis  (what  :Mr.  Goschen  described  as)  "perversity"  in 
the  rupee.  It  is  this  absolute  immobility  in  the  rupee  and  it  is  tliis 
alone  wliich  creates  a  silver  question.  If  prices  in  Asia  had  risen  pari 
passu  with  the  fall  in  the  gold  price  of  silver,  there  would  be  no  silver 
question,  and  not  one  of  us  here  would  walk  across  the  room  to  con- 
cern ourselves  as  to  the  future  price  of  silver  bullion.  In  Cliina  again 
where,  unlike  India,  the  exchanges  are  not  interfered  with  by  any 
action  of  the  Government,  cheap  silver  is  fostering  a  competition  with 
white  men's  industries,  which,  as  Cliina  awakens,  will  most  seriously 
react  upon  all  your  trans-Pacific  trades.  It  is  therefore  quite  impos- 
sible that  your  nation  can  permanently  acquiesce  in  the  present  hap- 
hazard exchange  relations  with  Asia.  Because  the  monsoon  rains 
failed  last  yearin  India  during  the  critical  fortnight,  India  has  little 
to  export,  and  therefore  the  merchants  demand  upon  the  Indian  gov- 
ernment for  rupees  has  dwindled;  therefore  that  government  is  buy- 
ing no  silver  and  the  price  of  silver  is  depressed  12  cents  per  ounce. 
So  that  the  entire  rates  of  exchange  with  eastern  Asia  have  come  to 
depend  upon  the  accident  of  the  rainfall  in  British  India.  Whether 
Lowell  cotton  mills  can  sell  their  cotton  goods  to  Cliina  depends  upon 
the  weather  in  British  India.  Let  me  read  you  a  resolution  of  the 
Manchester  (England)  Chamber  of  Commerce: 

We  are  led  to  the  conclusion  that  the  principal  cause  which  has  enabled  Bombay 
mills  to  supersede  those  of  Lancashire  in  exporting  yarn  to  China  is  the  great  fall  in 
eastern  exchange  since  1873. 

The  Shanghai  Chamber  of  Commerce  in  1898  said: 

In  due  course  the  products  of  Asiatic  cheap  labor  will  prove  far  more  injuiious  to 
the  interests  of  the  wage-earning  classes  in  gold-standard  countries  than  the  presence 
of  Chinese  coolies,  and  unless  silver  is  remonetized  protective  measures  mil  have  to 
be  adopted  to  exclude  from  gold-standard  countries  not  oriental  laborers  only,  but  all 
those  manufactures  also  which  are  subsidized  by  (gold)  premiums. 

The  Yokohama  Chamber  of  Commerce  said  (May  15,  1894): 

Alrcafly  under  the  influence  of  cheap  silver  a  large  proportion  of  the  trade  east  of 
the  Suez  Canal  is  finding  for  itself  new  channels  which  will  gradually  be  closed  to 
western  (r)nipetition,  and  we  foresee  that  further  persistence  in  the  monetary  policy 
of  Great  Bntain  must  entail  an  injury  to  the  manufactures  and  industries  of  tlie 
West  the  extent  of  which  is  incalculable. 

Here  are  resolutions  by  important  chambers  of  commerce  deal- 
ing with  tho.sc  exchange  conditions  which  are  their  daily  walk  and 
conversation.  AVhy  do  we  not  take  them  to  heart?  Tney  consti- 
tute the  v(>ry  theory  and  })ractice  of  the  foreign  exchanges  to-day. 
If  the  premium  on  gold  in  the  case  of  the  paper  currencies  of  Brazil 
or  the  Argentine  rises,  at  once  there  are  a  hundred  New  York  mer- 


ODRRENCY    LEGISLATION.  175 

chants  who  declare  that  what  they  sell  to  Rio  or  Buenos  Ayres  is 
seriously  interfered  with.  Then  why  not  admit  that  a  fall  in  the 
price  of  silver  bullion,  or,  in  other  words,  a  rise  in  the  gold  premium 
on  every  exchange  in  Asia  with  its  eight  hundred  millions  is  a  bar  to 
the  business  of  every  white  trader? 

Recall  that  when  the  government  of  India  in  1897  negatived  the 
proposals  of  the  Wolcott  Commission,  which  proposals  had  as  their 
aim  to  restore  the  rupee  to  its  old  exchange  of  10  to  the  sovereign, 
the  governor  of  India  said  "the  sudden  rise  in  the  rate  of  exchange 
would  kill  our  export  trade,  for  the  time  at  least,"  meaning  that  the 
export  trade  in  wheat,  cotton,  and  other  staples  would  be  killed  until 
gold  prices  in  Europe  rose  to  the  equivalent  of  the  rise  in  exchange. 
India  is,  of  course,  the  ward  of  our  nation,  and  any  currency  legisla- 
tion which  will  have  the  effect  of  increasing  the  monetary  use  of 
silver  in  the  West  and  thus  raising  the  bullion  price  of  silver  against 
the  East  and  which  will  check  India's  exports  and  stimulate  ours, 
strikes  Parliament  as  questionable;  at  least  it  is  hardly  for  us  to 
take  the  first  step;  it  is  for  you  Americans  to  move,  and  it  is  undoubt- 
edly your  interest  to  do  so. 

Mr.  Chairman,  I  have  outlined,  however  briefly  and  cursorily,  the 
position  which  you  would  assume  did  you  here  apply  the  proposal 
made  for  us  by  our  chancellor  of  the  exchequer,  Mr.  Goschen.  In 
the  first  place  you  would  have  a  great  "war  chest,"  a  great  central 
reserve  of  "free  gold"  at  the  disposal  of  the  Treasury,  available  in 
the  event  of  war  or  in  the  event  of  panic.  During  the  next  twenty 
j^ears  this  gold  reserve  might  accumulate  to  say  five  hundred  millions. 
The  second  point  is  that  the  absorption  of  silver  to  secure  these  small 
notes  would  make  the  conditions  of  mining  in  your  Mountain  States 
active  and  profitable,  and  silver  is  a  national  industry"  which  in  regard 
to  the  per  capita  wealth  product  of  the  laborers  employed  is  the  most 
valuable  industrj^  you  have.  In  the  third  place  your  absorption  of 
silver  would  raise  the  exchange  rates  with  eight  hundred  millions 
of  those  producers  in  Asia  whose  exports  to  European  markets  com- 
pete with  your  own;  the  rise  in  exchange  would  impair  their  power 
to  compete  with  you  in  Europe,  and  thus  add  greatly  to  your  bal- 
ance of  trade  and  give  you  a  greater  control  through  your  exchanges 
over  the  gold  markets  or  Europe.  And  also  the  rise  in  silver  exchange 
would  enable  you  to  sell  goods  in  Asia  at  a  profit  where  to-day  there 
would  be  a  loss. 

The  situation  of  silver  to-day  is  a  very  interesting  one,  and  I  ^^dsh 
I  were  able  to  explain  in  the  short  time  at  my  disposal  the  extraor- 
dinary position  in  which  the  government  of  tndia  finds  itself.  The 
attitude  of  that  government  is  all  important  when  we  consider  this 
question.  According  to  the  latest  of  your  Treasury  reports  the 
world's  production  of  silver  at  present  is  a  hundred  and  fifty  million 
odd  ounces.  Now,  the  government  of  India,  according  to  their  lat- 
est financial  report,  purchased  last  year  90,000,000  ounces  to  convert 
into  this  coin  [producing  a  rupee],  coining  at  their  mints  more  than 
222,000,000  rupees  in  a  single  j'ear.  Again,  the  absorption  of  silver 
in  the  arts  and  manufactures,  as  given  in  your  report,  amounts  to 
50,000,000  ounces  annually;  so,  in  efi"ect,  the  entire  silver  produc- 
tion of  the  world  is  being  purchased  by  the  government  of  India 
and  by  the  world's  silversmiths.  When  the  Indian  mints  were  closed 
in  1893  Sir  James  Westland  was  finance  minister.     He  was  unfor- 


176  CURRENCY    LEGISLATION. 

tunately  the  onl}'^  finance  minister  that  India  has  had  in  my  time 
who  laiew  nothing  either  about  currency  or  exchange  questions. 
The  Indian  mints  having  been  closed  to  free  coinage,  Sir  James  West- 
land's  idea  was  to  apply  a  gold  standard — yes,  but  a  gold  currency 
also;  and  this  latter  was  ridiculous  and  quite  impracticable.  How- 
ever, to  carry  out  his  idea  during  the  years  from  1893  to  1898,  Sir 
James  not  only  coined  no  rupees,  but  he  melted  up  large  numbers, 
selling  the  bullion  for  gold,  intending  to  give  this  gold  in  the  form  of 
currency  to  India.  But  all  that  he  was  able  to  spare  to  the  melting 
pot  during  the  five  years  from  1893  to  1898  was  19,000,000  rupees, 
not  one-tenth  of  the  number  of  rupees  that  the  government  coined 
last  year,  and  yet  the  contraction  in  India's  currency  resulting  from 
five  years'  cessation  of  coinage  and  this  small  melting  induced  a 
veritable  money  famine.  So  terrible  was  this  money  famine  that  in 
1898  rupee  loans  were  made  in  Bombay  at  2  per  cent  per  month  on 
the  security  of  gold  bars. 

At  this  point  the  Westland  experiment  broke  down,  for  the  cur- 
rency famine  took  on  the  appearance  of  a  food  famine;  a  quarter  of 
a  million  people  were  being  fed  by  the  State,  while  thousands  died. 
Rice  and  small  grains  were  not  really  very  scarce,  but  there  was  no 
money  up  country  with  which  to  buy  or  move  them.  In  short,  starv- 
ing the  Indian  currency  merely  by  ceasing  to  coin  new  rupees  for  five 
years  had  brought  our  great  Indian  dominion  to  a  state  of  barter. 
When  Mr.  Clinton  Dawkins  succeeded  Sir  James  Westland  he  recog- 
nized the  disease  at  once;  a  money  famine  had  been  created;  the 
Indian  government  immediately  reversed  their  policy  and  com- 
menced to  purchase  vast  quantities  of  silver  and  to  pour  it  through 
their  mints.  In  1900  the  currency  was  expanded  by  over  seventeen 
crores  of  rupees  (171,479,318  rupees).  Since  that  time  the  demand 
by  India  for  rupees  has  been  insatiable.  As  I  have  pointed  out,  the 
Indian  government  last  year  bought  nearly  two-thirds  of  the  whole 
world's  silver  product  and  coined  227,670,000  new  rupees,  the  mere 
seigniorage  profit  on  which  was  $20,000,000.  So  that  the  Westland 
idea  of  1893  of  starving  the  Indian  currency  until  a  gold  habit  was 
acquired,  until  a  gold  standard  and  gold  currency  took  the  place  of  a 
silver  standard  and  silver  currency,  this  has  given  place  now  to  far 
larger  coinages  of  rupees  with  "closed  mints"  than  were  ever  coined 
with  open  mints.  But  to-day  the  only  man  who  can  supply  the  mer- 
chant with  the  rupees  he  needs  to  buy  wheat,  cotton,  rice,  or  tobacco 
is  the  secretary  of  state  for  India.  The  secretary  of  state  for  India 
is  the  silver  king;  he  is  the  great  rupee  monopolist.  Before  the 
Indian  mints  were  closed  to  free  coinage  in  1893  the  merchant  had 
this  protection :  He  could  buy  silver  from  Colorado  in  the  open  mar- 
ket, send  it  to  Bombay  and  have  it  minted  into  rupees,  so  that  he 
was  not  at  the  mercy  of  the  secretary  of  state  for  India;  but  to-day 
to  buy  the  rupees  he  requires  to  pay  for  the  products  which  he 
imports  into  Europe  the  merchant  must  go  to  the  secretary  of  state, 
who  sells  him  rupees  at  what  price  he  likes.  The  price  fixed  by  the 
government  of  India  for  a  rupee  to-day  is  16  pence.  Next  year  if 
they  raise  the  rate  to  18  pence  or  drop  it  to  14  pence  the  merchants 
operating  in  Indian  produce  will  have  to  acquiesce  or  go  out  of  busi- 
ness. At  present  the  silver  in  the  16-penny  rupee  is  worth  just  10 
pence  gold,  so  that  on  any  rupees  coined  to-day  the  Indian  govern- 
ment has  a  profit  of  60  per  cent.     The  profit  on  seigniorage  at  pres- 


CURRKNCY    LEGISLATION.  177 

ent  stands  second  only  on  the  revenue  list  to  that  which  the  govern- 
ment receives  from  its  land  tax.  It  is  a  vicious  and  innnoral  system, 
this  of  selling  full  legal  tender  currecy,  the  mone}^  of  exchange,  at  a 
huge  premium.     Mr.  Morley  no  doubt  regards  it  with  great  misgiving. 

Mr.  Weeks.  What  percentage  is  the  seigniorage  of  the  total  Indian 
revenue  ? 

Mr.  Frewen.  I  should  have  to  refer  for  that,  but  I  think  the  total 
Indian  revenue  is  about  eighty  millions  sterling. 

India,  through  its  secretary  of  state,  Mr.  John  Morley,  dominates 
the  silver  question.  They  have  arrived  at  a  system  which  cheapens 
silver  bullion  to  just  that  point  where  their  export  trades  in  many 
staples  can  comj^ete  most  successfidly  with  yours.  They  have 
arrived  at  an  exchange  point  which,  as  they  think,  gives  them  the 
largest  seigniorage  profit  possible  and  yet  permits  their  export  trades 
to  prosper.  Is  it  not,  therefore,  time  for  your  country  to  take  a  hand 
in  the  silver  discussion?  If  you  can  through  the  Goschen  plan  get 
the  price  of  silver  bullion  up  to  something  like  a  dollar  an  ounce 
then  your  exports  from  this  country  will  be  stimulated  at  the  expense 
of  exports  from  India  and  China.  That  is  an  argument  which,  as  I 
said  before,  does  not  appeal  to  us  in  England  to  quite  the  same 
extent.  Our  statesmen  say,  "Why  connive  at  a  change  in  exchanges 
which  will  enable  the  United  States  to  export  at  India's  expense  wheat, 
cotton,  jute,  rice,  timber,  and  other  staples  which  at  present  reach 
us'  from  India,  a  part  of  our  own  Empire ;  and  why  also  by  expandmg 
the  exporting  capacity  of  the  United  States,  which  is  already  pre- 
ponderant, place  our  gold  market  still  more  at  her  mercy?"  Of 
this  nature  will  be  the  objections  to  the  Goschen  plan  in  England; 
to  a  certain  point  they  are  valid  objections,  but  I  am  convinced 
that  the  long-continued  low  rates  of  silver  exchange  have  been 
undermining  the  industries  of  white  workers  everywhere.  You  may 
recall  that  before  the  election  of  1896  your  then  Speaker,  Thomas  B. 
Reed,  crystallized  the  exchange  problem  in  a  very  happy  phrase. 
He  said,  "I  have  come  to  see  that  the  yellow  man  using  the  white 
money  may  cut  the  throat  of  the  white  man  using  the  yellow  money." 

Before  concluding  I  wish  to  say  that  on  one  point  where  I  was  not 
at  all  clear  a  few  years  since  I  am  quite  convinced  to-day.  We  reform- 
ers thought  that  the  great  rise  of  prices  which  we  foresaw  nuist  follow 
from  the  new  gold  discoveries — that  this  would  settle  the  silver  ques- 
tion; but  we  ought  to  have  foreseen  that,  far  from  settling  the  ques- 
tion, it  must  inevitably,  after  a  short  period  of  adjustment  and  excite- 
ment, recreate  the  disease  and  in  a  more  virulent  type,  because  as 
gold  prices  i;ise^and  they  are  certain  to  rise  much  higher  during  the 
next  ten  years — so  also  w^ages  and  the  whole  cost  of  living  in  gold- 
standard  communities  must  rise  pari  passu.  Already  here  w-ages 
have  largely  adjusted  themselves  to  the  higher  profits  resulting  from 
higher  prices.  But  what  of  Asia?  There  there  is  not  as  yet  even  a 
faint  symptom  of  a  rise  in  silver  prices.  In  Asia  wages  and  the  cost 
of  living  are  just  what  they  were  thirty  years  ago.  So  that  the  rise 
of  gold  prices  in  Europe  magnetizes  every  product  which  Asia  can 
pile  on  shipboard  to  export.  Asia,  that  is,  gets  more  rupees  or  dollars 
or  taels  with  each  advance  of  gold  prices  in  Europe,  and  because  her 
wages  and  her  prices  show  no  tendency  to  advance  she  more  and  more 
holds  the  competing  industries  of  white  men  by  the  throat.  If  silver 
prices  in  Asia  remain  fixed  and  immovable  (and  until  the  mints  of 

37381—08 12* 


178  CURRENCY    LECIISLATION 

India  reopen  they  will^  in  my  humble  judgment,  remain  fixed  and 
immovable),  the  happy  dictum  of  Speaker  Reed  must  with  each  fresh 
rise  of  gold  prices  recur  more  and  more  to  the  minds  of  all  those  who 
to-day  are  anxious  students  of  the  great  problem  of  silver.  Nor  is  it 
only  from  Asia  that  competition,  subsidized  by  the  gold  premium  on 
silver  currencies,  is  destined  to  increase.  I  was  shooting  two  winters 
since  in  East  Africa  on  the  Victoria  Nyanza.  The  cheap  rupee  of  the 
government  of  India  has  already  in  only  ten  years  covered  a  huge 
country  there.  It  is  beginning  to  be  the  center  of  attraction  for 
countless  native  tribes  from  Abyssinia  to  the  Kongo.  As  in  Hindustan, 
so  also  in  East  Africa  it  is  being  hoarded  on  a  great  scale.  On  return- 
ing fi'om  the  great  lakes  I  learned  from  the  bank  in  Mombasa  that 
they  had  imported  from  India  over  9,000,000  rupees  in  five  years. 
In  a  quarter  of  a  century  it  is  safe  to  predict  that  the  rupee  will 
rule  all  the  exchanges  of  Africa  from  Egypt  to  the  Zambesi.  \Miether 
this  new  trade  development  helps  us  or  hurts  us  will  largely  depend 
on  the  exchange  value  of  the  rupee.  Such  is  the  new  phase  of  the 
silver  question;  your  community  will  never  consent  to  leave  an  issue 
of  such  magnitude  where  it  is  to-day  at  the  mercy  of  the  season's 
rains  in  Hindustan.  As  a  palliative,  then,  as  a  mere  makeshift  to 
carry  the  world  along  for  twenty  years  until  it  has  found  time  through 
study  to  settle  the  problem  on  wise  and  wide  lines — a  problem  which 
Vitally  concerns  all  white  men— I  have  ventured  to  submit  for  your 
consideration  the  Goschen  plan. 

Mr.  Hayes.  I  do  not  suppose  you  are  aware  that  we  have  in  this 
country,  perhaps  not  in  actual  circulation,  but  in  the  banks,  among 
the  people,  something  like  four  hundred  and  sixty  millions  or  four 
hundred  and  seventy  millions  of  dollars  of  silver  certificates  secured 
by  silver  deposited  in  the  Treasury,  and  mostly  ones  and  twos. 

Mr.  Frewex.  I  am  aware  of  that,  but  you  wall  bear  in  mind  that 
the  radical  distinction  between  Mr.  Goschen's  proposition  and  the 
legal  status  of  your  silver  certificate  is  that  the  notes  he  proposes  to 
issue  will  not  be  legal  tender. 

Mr.  Hayes.  Ours  are  not  either. 

Mr.  Frewen.  The  silver  dollars  are;  true,  your  silver  certificates  are 
not;  but  as  long  as  the  man  who  owns  the  silver  certificate  can 
demand  a  legal-tender  dollar  for  it,  to  all  practical  purposes  the  silver 
certihcate  is  legal  tender.  But  the  only  point  I  wanted  to  emphasize 
to  the  committee  was  that  Mr.  Goschen's  proposition  was  to  issue 
nothing  but  token  money,  and  all  economists  are  agreed  that  token 
money,  the  legal  tender  of  which  is  limited  to  $10,  has  no  effect  upon 
prices. 

Mr.  Hayes.  Then  you  think  it  would  be  safe  under  the  circum- 
stances, considering  that  we  have  five  hundred  millions  of  currency 
in  the  shape  of  silver  certificates,  that  it  would  be  safe  for  us  to  still 
add  further  to  that  stock  by  issuing  such  money  as  you  suggest? 
P|Mr.  Frewen.  I  think  it  would  be  perfectly  safe.  There  is  no 
insecurity  whatever  in  issuing  ])ocket  money  "which  is  strictly  lim- 
ited in  its  legal  tender  to  SIO.  It  would  be  merely  for  the  conven- 
ience of  the  ))eople  and  it  woidd  have  no  effect  on  piices  whatever, 
and  through  |)rices  on  the  exchanges.  This  proposition,  so  far  from 
being  an  inflation,  is  distinctly  a  contraction.  Of  course  I  can 
understand  that  your  silver  men  may  object  to  it  on  the  ground 
that  it  is  a  measure  to  contract  your  currency. 


CURRENCY    LEGISLATION.  179 

^Ir.  Weeks.  Air.  P'rewen,  at  tlio  last  session  of  (.'ongre.ss  we  passed, 
in  connection  with  other  currency  legislation,  a  bill  which  cut  up  our 
gold  and  silver  certificates.  There  is  a  great  demand  for  small  bills 
in  this  country.  A  large  proportion  of  the  people  in  our  country  do 
not  bank  at  ail  owing  to  the  remoteness  of  the  banks,  and  I  presume, 
in  proportion  to  the  population,  a  greater  amount  of  money  is  carried 
in  the  pockets  of  the  pe()})le  than  in  other  countries.  To  meet  that 
demand  we  cut  up  our  gold  circulation  into  smaller  bills.  Since  that 
time  it  is  perfectly  apparent  to  anyone  that  there  are  great  num- 
bers of  these  bills  in  circulation  which  were  not  in  circulation  before. 
Basing  the  thought  on  your  suggestions,  that  was  bad  legislation 
from  our  standpoint,  because  it  put  into  the  pockets  of  the  people 
full  legal  tender  money  when  they  might  just  as  well  have  used 
soir.ething  in  the  place  of  it;  in  other  words,  we  were  doing  exactly 
the  opposite  thing  to  that  suggested  bv  Mr.  Goschen  in  his  speech  of 
1891. 

Air.  Frewen.  We  thought  in  England  that  your  legislation  of  last 
session  was  most  unfortunate.  Those  big  gold  certificates  should  have 
been  on  deposit  at  the  banks.  If  you  have  a  certificate  for  a  thousand 
gold  dollars,  that  certificate  will  not  be  carried  in  the  pockets  of  the 
people.  It  is  credit  money,  but  if  you  break  it  up  into  small  notes 
it  becomes  mere  pocket  money. 

Mr.  Weeks.  I  am  inclined  to  think  that  is  right. 

Mr.  Gillespie.  As  to  these  notes  that  you  speak  of  issuing,  they 
would  only  be  redeemable  in  silver,  and  not  in  gold. 

Mr.  Frewen.  Yes. 

Mr.  Gillespie.  And  the  legal  tender  limit  would  be  $10? 

Mr.  Frewen.  Yes. 

iVIr.  Hayes.  They  would  have  to  be  redeemable  to  the  extent  of  $10 
in  gold  in  order  to  maintain  their  parity. 

Sli\  Frewen.  They  would  be  legal  tender  for  $10,  and  in  efi^ect  no 
doubt  thev  are  exchangeable  by  the  holder  for  «old  to  that  extent. 

Mr.  Hayes.  To  that  extent? 

Mr.  Frewen.  Yes;  only  they  would  not  be  secured  by  gold. 

Mr.  Gillespie.  If  they  are  redeemable  in  gold,  in  case  of  a  crisis 
there  is  always  a  run  for  gold  everywhere,  and  would  not  these 
limited  notes  come  in  to  the  banks  and  would  not  the  people  every- 
wdiere  demand  gold? 

Mr.  Frewen.  I  think  not,  because  they  are  not  money  of  deposit 
at  all,  but  simply  fractional  pocket  money — ^token  money — such  as 
we  have  in  our  country,  the  half  crown  or  the  shillino;.  You  will 
carry  these  notes  for  the  purpose  of  shopping.  I  incline  to  think 
that  the  banks  should  not  receive  them  on  deposit  at  all.  The  banks 
in  our  country  are  not  obliged  to  receive  half  crowns,  but  they  do 
so  to  oblige  their  large  customers.  I  think  it  would  be  a  good  tiling 
if  the  banks  never  received  the  proposed  small  notes;  their  refusal 
would  keep  them  in  circulation. 

Mr.  James.  You  think  it  w^ould  be  impossible  to  gather  up  a  suf- 
ficient number  to  make  a  run  on  the  gold  reserve? 

Mr.  Frewen.  Yes. 

Mr.  Crawford.  Do  English  consols  circulate  as  money? 

Mr.  Frewen.  No. 

Mr.  Crawford.  The  interest-bearing  consols  ? 


180  CURRENCY  lp:gislation. 

Mr.  Frewen.  Our  consols  do  not  circulate  as  money  at  all;  they 
are  not  used  as  yours  here  as  a  basis  for  national  bank  currency. 

Mr.  Prince  (Acting  Chairman).  I  want  to  read  from  the  [national 
bank  act  regarding  legal  tender  and  lawful  money  (reads) : 

The  following  statement  concerning  the  legal-tender  properties  of  money  of  the 
United  States  is  based  upon  United  States  Revised  Statutes,  sections  3585,  3586,  3587, 
3588,  3589,  and  3590,  and  the  acts  amendatory  thereof  and  additional  thereto:  "Gold 
coin,  standard  silver  dollars,  subsidiary  silver,  minor  coins,  United  States  notes,  and 
Treasury  notes  of  1890  have  the  legal  tender  quality  as  follows:  Gold  coin  is  legal 
tender  for  its  nominal  value  when  not  below  the  limit  of  tolerance  in  weight;  when 
below  that  lin^it  it  is  legal  tender  in  proportion  to  its  weight;  standard  silver  dollars 
and  Treasury  notes  of  1890  are  legal  tender  for  all  debts,  public  and  private,  except 
where  otherwise  expressly  stipulated  in  the  contract;  subsidiary  silver  is  legal  tender 
to  the  extent  of  ten  dollars,  minor  coins  to  the  extent  of  twenty-five  cents,  and  United 
States  notes  for  all  debts,  public  and  private,  except  duties  on  imports  ATk\  interest 
on  the  public  debt." 

Perhaps  joii  have  not  seen  the  February  statement  of  the  Treasury 
Department,  have  you? 

Mr.  Frewen.  No. 

Mr.  Prince.  The  clerk  will  show  you  that,  and  after  you  have  been 
kind  enough  to  look  at  it,  will  you  please  answer  this  question:  By 
that  statement  of  February  1,  1908,  you  will  see  that  we  had  on  that 
date  562,849,982  standard  silver  dollars,  wliich  are  full  legal  tender. 
Now,  casting  your  eye  over  that  statement  you  will  find  that  the 
total  amount  of  money  and  currenc}^  that  we  have  in  circulation,  or 
in  the  general  stock  of  money  in  the  United  States,  is  $3,380,452,108. 
The  estimated  population  is  86,903,000  and  the  circulation  per  capita 
is  $35.61.  All  of  that  money  that  I  have  enumerated,  $3,000,000,000 
and  over,  is  on  a  parity  with  gold,  of  which  there  is  less  than  one-half 
which  is  gold;  in  other  words,  $1,638,000,000.  Now,  if  you  had  in 
circulation  what  is  called  the  "Goschen  note" — and  under  our  law 
all  classes  of  money  and  currency  must  be  maintained  at  a  parity 
with  gold^are  you  not  endangering  the  gold  basis? 

Mr.  Hayes.  Yes;  and  wouldn't  it  result  in  exporting  gold  in  a 
short  time? 

Mr.  Frewen.  Oh,  no;  what  expels  gold  is  the  movement  of  your 
exchanges.  If  you  inflate  your  currency  you  raise  your  prices, 
increase  your  imports,  and  your  gold  leaves  to  pay  for  increased 
imports.  But  pocket  money — the  small  fractional  money — has  no 
effect  on  prices.  It  is  the  credit  money  that  raises  prices  and  influ- 
ences the  exchanges.  The  whole  position  is  this:  If  the  Goschen 
notes  were  unlimited  legal  tender,  I  should  at  once  say,  of  course, 
they  might  expel  gold.  If  you  make  an  issue  of  full  legal-tender 
money  to  that  extent — and  I  use  the  word  inflate  scientifically^you 
"inflate"  your  circulation,  to  however  small  a  degree.  If  you 
inflate  your  circulation  you  raise  your  home  prices,  and  if  yoii  raise 
prices  here  you  increase  iniports,  and  if  you  increase  your  imports 
you  throw  the  balance  of  trade  to  that  extent  against  the  country 
and  drive  gold  out.     That  is  the  only  way  in  which  you  can  expel 

Mr.  Prince.  Your  idea  is  that  these  notes  being  in  small  denom- 
inations, and  being  scattered  throughout  the  country  and  held  only 
in  the  pockets  of  the  people,  it  would  be  next  to  impossible  to  gather 
them  together  in  such  (piantities  as  to  present  them  in  sums  of  $10. 

Mr.  Frewen.  You  could  not  present  them  legally — legally  they 
are  a  demand  for  fractional  silver  only. 


CURRENCY    LEGISLATION.  181 

Mr.  Prince.  That  is,  they  are  legal  tender  up  to  $10,  so  that  if  you 
o;athered  enough  of  them  together  to  make  $10  you  could  then  ask 
tor  gold  'i 

Mr.  Frewen.  You  could  only  ask  a  bank  for  the  $10  once;  you 
could  not  present  another  and  get  the  gold.  You  could  not  hand  in 
a  million  of  them  and  receive  a  million  dollars. 

Mr.  Gillespie.  One  man  could  go  to  the  bank  ten  different  times 
a  day,  could  he  not? 

Mr.  Frewen.  But  that  would  be  a  small  matter. 

Mr.  GiiXESPiE.  Supposing  there  should  be  a  hundred  men  doing 
the  same  thing? 

Mr.  Frewen.  That  is  still  a  small  matter  and  would  not  make  a 
run  on  the  bank.  In  short,  these  silver  notes,  even  to  $10,  are  not  a 
demand  for  gold,  but  only  for  fractional  silver. 

Mr.  Prince.  We  have  had  the  operation  of  an  endless  chain  in 
this  country,  and  as  the  result  of  that  endless  chain  there  was  a 
drawing  out  of  gold,  and  we  had  to  issue  about  $260,000,000  bonds 
to  maintain  that  chain.  We  have  only  7,000  individual  banks.  It 
might  be  that  this  is  only  a  notion  in  one's  head,  but  still- 

Mr.  Frewen.  You  can  not  be  too  careful;  I  agree  with  you  there. 

Mr.  Prince.  It  might  cause  some  disturbance. 

lias  3^our  attention  been  called  to  any  of  the  pending  bills  in  the 
House  for  consideration?  For  instance,  has  your  attention  been 
called  to  what  is  known  as  the  new  "Fowler  bill,"  the  one  that  the 
committee  now  has  under  consideration? 

Mr.  Frewen.  No,  Mr.  Chairman;  it  has  not. 

Mr.  Prince.  Has  your  attention  been  called  to  the  bill  that  is 
being  discussed  in  another  body,  and  which  has  been  printed  in  the 
newspapers  and  is  known  as  the  "Aldrich  bill?" 

Mr.  Frewen.  I  have  read  Senator  Aldrich's  speech,  so  I  am  gen- 
erally conversant  with  its  conditions. 

Mr.  Weeks.  Do  you  think  the  silver  notes  suggested  in  the 
Goschen  plan  would  have  any  other  advantage  over  a  properly  issued 
credit  currency  note  than  the  stimulation  of  silver  mining? 

Mr.  Frewen.  Yes;  that  is  the  point  I  tried  to  make.  The  all- 
important  point  is  the  rise  in  the  exchange  rates  with  the  Orient. 
This  is  the  only  pcnnt  interesting  me  in  connection  with  what  is 
called  the  silver  question.  Whenever  the  bullion  price  of  silver 
falls  you  stimulate  all  that  which  is  export.  Anything  that  will 
give  employment  to  silver  and  thus  keep  it  at  a  higher  rate  will 
enable  you  to  compete  on  much  better  terms  with  what  Asia  exports 
to  Europe. 

Mr.  Weeks.  Suppose  China  should  go  to  a  gold  basis? 

Mr.  Frewen.  Well,  look  at  the  position  of  India  with  a  gold 
standard.  We  shall  never  get  a  gold  currency  into  India  or  China. 
There  is  all  the  diflerence  in  the  world  between  a  gold  standard 
and  a  gold  currency:  but  to  some  extent  the  fact  that  the  rate  of 
exchange  is  being  held  artificially  that  coin,  which  ought  to  have  a 
bullion  value  of  twenty-one  to  the  pound,  is  being  held  artificially  at 
fifteen  to  the  pound — that  does  to  some  extent  cripple  India's  power 
to  export,  but  to  a  limited  extent.  The  exchange  rate  for  the  rupee 
is  fifteen  to  the  pound.  I  would  like  to  see  it  at  thirteen  to  the 
pound;  at  that  exchange  silver  is  cheap  enough.  Have  you  got  a 
reply  to  your  question?     The  point  of  great  importance  to  1113'  mind 


182  CURRENCY   LEGISLATION. 

is,  that  if  YOU  can  safely  do  something  on  the  Goschen  Hnes  then  the 
rate  of  exchange  will  go  up ;  in  other  words,  the  bullion  price  of  silver 
will  go  up,  which  will  increase  your  exports  immensely  to  Asia. 
That  is  why  I  should  like  to  see  the  Goschen  plan  adopted  here  and 
in  England. 

Mr.  Chairman,  I  know  that  notwithstanding  the  difficulties  I  haYe 
pointed  out — the  fact  that  the  goYernment  of  India  makes  four 
millions  sterling  of  profit  on  seigniorage,  and  the  fact  that  India  is  our 
ward  and  w^e  are  therefore  tender  about  their  export  advantages- 
yet  we  had  so  hard  a  time  last  w^inter  after  your  crisis,  the  banks 
raising  rates  to  7  per  cent,  that  we  are  in  the  mood  to  consider 
some  careful  measure  of  reform.  I  believe  such  a  measure  as  Mr. 
Goschen's  would  carry  the  city  of  London  with  it,  and  that  it  would 
satisfy  the  chancellor  of  the  exchecpier.  If  you  had  a  commission 
liere,  and  would  send  over  a  subcommittee  such  as  the  Wolcott  Com- 
mission, which  had  satisfied  itself  that  this  solution  of  the  currency 
question — the  Goschen  solution — is  sound,  I  believe  the  two  countries 
would  adopt  it.     I  think  it  likely  also  that  Germany  would  adopt  it. 

Mr.  Weeks.  Do  you  think  it  w^ould  be  w^ise  from  every  view  point 
on  the  part  of  this  Government  to  try  to  open  up  negotiations  with 
your  country  along  the  lines  of  the  Wolcott  Commission? 

Mr.  Frewex.  I  think  that  if  you  appointed  an  expert  commission, 
not  on  the  lines  of  the  Wolcott  projjosal — that  day  is  gone — I  have 
here  the  rei)ly  of  the  government  of  India  to  the  Wolcott  proposals — 
but  if  YOU  would  make  the  point  that  America  now  recognizes  that 
the  government  of  India  is  able  to  buy  and  coin  two-thirds  of  all  the 
silver  mined  in  the  world  for  the  Indian  currency,  that  so  great  an 
addition  to  the  Indian  currency  has  not  afTected  India's  prices  at  all; 
that  is,  prices  in  India  have  not  risen  at  all — that  Africa  is  commenc- 
ing to  absorb  large  quantities  of  silver — if  you  take  that  line  and 
say,  "It  encourages  us  to  believe  that  the  settlement  of  the  silver 
question  is  not  after  all  a  very  large  one."  it  seems  to  me  that  we 
coidd  join  you  and  Germany  in  issuing  these  proposed  small  notes 
in  order  to  get  in  those  three  countries  large  central  gold  reserves. 
I  believe  along  those  lines  a  safe  settlement  of  the  currency  question 
can  be  greatly  advanced. 

Mt.  "Weeks.  When  settling  the  currency  question  along  those  lines, 
w^ould  it  materially  afl'ect  the  currency  conditions  throughout  the 
world  ? 

Mr.  Frewen.  Oh,  yes;  it  would  immensely.  It  would  raise  the 
rates  of  exchange  against  the  whole  of  Asia. 

Mr.  McKixxEY.  As  I  understand  you,  the  silver  notes  issued  along 
the  lines  of  the  Goschen  proposal  would  be  redeemable  at  our  Treasury 
in  silver? 

Mr.  Frewen.  Yes,  sir. 

Mr.  McKiNNEY.  Taking  into  account  the  fact  that  we  have  issued 
silver  certificates  for  nearly  all  of  the  silver  that  we  have  in  the  Treas- 
ury, in  order  to  provide  for  the  redemption  of  these  new  notes,  would 
not  our  (lovernment  have  to  go  to  work  and  buy  silver  again,  and 
would  not  that  tend  to  disturlj  our  present  standard? 

Mr.  Frewen.  Not  the  least,  as  long  as  the  notes  issued  are  of 
limited  legal  tender.  The  notes  could  not  expel  a  dollar  of  gold  from 
this  country  under  any  conceivable  circumstances.     On  the  contrary, 


CURRENCY    LEGISLATION.  183 

but  indirectly,  they  woiiUl  bring  you  much  gold  tlir<3Ugh  the  increase 
of  your  export  trades  wliich  they  would  bring  about. 

Mr.  Weeks.  What  would  be  your  opinion  as  to  the  effect  if  you  did 
not  make  them  legal  tender  in  any  amount? 

Mr.  Frewen.  Well,  you  must  make  them  legal  tender  to  a  limited 
amount.  Pocket  money  is  pocket  money,  and  token  money  is  token 
money.  There  is  no  token  money  in  the  world  that  is  not  legal  tender. 
If  you  did  not  make  them  legal  tender,  would  anyone  receive  them, 
say,  at  your  post-oflices?  The  Wolcott  proposition  was  tliat  we  should 
increase  the  tender  of  our  silver  money — increase  it  from  £2  to  £5 — 
but  1  do  not  think  there  is  any  particular  point  in  it;  it  is  not  worth 
urging.     I  think  that  $10  is  as  good  a  limit  as  $2.5. 

Mr.  Gillespie.  Do  you  think  that  this  $50(),0()(),000  could  gt)  out 
among  the  people  and  have  no  particular  effect  on  prices? 

Mr.  Frewen.  In  the  first  place,  this  fiv^e  hundred  millions  of 
fractional  currency  takes  the  place  of  full  legal-tender  gold  notes. 
You  are  going  to  contract  your  ciuTency  to  the  extent  of  $500,000,000. 
The  result  should  be  some  slight  fall  of  prices. 

Mr.  Gillespie.  Then  the  available  supply  of  full  legal-tender 
money  would  be  increased  $500,000,000. 

Mr.  Hayes.  His,  idea  would  be  to  pile  up  the  $500,000,000  in  the 
Treasury. 

Mr.  Frewen.  You  would  have  $500,000,000  of  gold  in  a  reserve 
for  the  purpose  of  meeting  a  crisis;  it  is  to  be  locked  up. 

Mr.  Prince.  In  other  words,  it  is  currency  substitution  and  not 
currency  inflation. 

Mr.  Frewen.  It  is  contraction  and  not  inflation,  '^'ou  would  be 
contracting  the  full  legal-tender  money  current  and  you  would  put  in 
its  place  nonlegal-tender  money,  which  has  no  effect  on  prices. 

Mr.  Gillespie.  If  it  became  necessary  to  turn  the  legal-tender 
money  loose  again  in  the  country,  that  would  have  an  eft'ect  on  prices? 

Mr.  Frewen.  That  would  be  to  return  in  a  crisis  the  five  hundred 
millions  by  which  you  contracted  your  currency. 

Mr.  Gillespie.  Suppose  we  wanted  to  prepare  for  war  and  had 
to  use  this  $500,000,000— put  it  in  circulation.  We  would  have  to 
provide  the  legal-tender  gold  and  the  small  notes,  would  we  not? 

Mr.  Frewen.  The  small  notes  would  at  no  time  and  under  no 
circumstances  have  any  eft'ect  on  prices;  vou  would  be  incurring  no 
risk.  Suppose  that  you  had  accumulated  this  $500,000,000  that  I 
have  been  talking  of,  and  it  had  been  in  vour  Treasurv  last  October — 
suppose  that  Mr.  Cortelyou  had  had  $500,000,000  ot^'free  gold  at  his 
disposal.  Would  not  the  situation  at  that  time  have  been  imme- 
diately relieved  ? 

(Adjourned  at  12  o'clock  noon.) 


lIEAliING  ON  THE  FOWLEK  BILL. 


Committee  ox  Banking  and  Currency, 

House  of  Representatives, 

Wednesday,  February  19,  1908. 
The  committee  met  at  11  o'clock  a.  m.,  Hon.  Charles  N.  Fowler 
(chairman)  presiding. 

STATEMENT  OF  HON.   LYMAN  J.   GAGE,  EX-SECRETARY  OF  THE 
UNITED  STATES  TREASURY. 

The  Chairman.  I  present  to  you  ex-Secretary  Gage,  who  has  come 
here  upon  in^dtation  to  address  us  relative  to  proposed  legislation 
and  who  will  proceed  to  make  liis  statement,  and  after  he  has  finished 
he  will  be  very  glad  to  answer  any  questions  that' the  gentlemen  of 
the  committee  want  to  ask  him. 

Mr.  Gage.  Mr.  Chairman  and  gentlemen,  I  do  not  know  but  I 
ought  to  apologize  to  you  for  coming  and  thus  intruding  upon  your 
time.  I  tlunk  perhaj^s  I  ought  to  apologize  to  myself,  for  I  was  free 
from  trouble  and  cares  of  all  kind,  with  no  responsibilities  resting 
upon  me,  and  here  I  now  am  mixed  up  in  something  that  only  con- 
cerns me  from  a  general  patriotic  point  of  view.  It  only  concerns 
me,  as  I  say,  as  a  citizen,  and  as  a  man  who  loves  liis  country. 

We  have  reached  what  I  tliink  is  the  most  important  period  in 
our  history  for  forty  or  fifty  years,  and  that  is  the  determination 
of  the  question,  the  solution  of  wliich  depends  very  largely  upon  the 
body  of  men  composing  this  committee.  So  I  think  if  there  is  any- 
thing that  I  can  contribute,  either  to  show  you  by  my  ignorance 
what  you  ought  not  to  do,  or  by  my  experience  and  correct  reflections, 
if  they  are  such,  what  will  help  j^ou  see  what  you  ought  to  do,  then 
in  that  case  I  believe  it  to  be  my  dutv,  not  my  pleasure,  although 
there  always  is  a  degree  of  pleasure  in  performing  one's  duty,  to 
accept  the  invitation  of  the  chairman  to  come  here  and  speak  the 
truth  as  I  see  it. 

I  ciuestion  how  I  ought  to  proceed  in  what  I  have  to  say.  All  of 
you  know,  if  you  know  about  me  at  all,  that  I  am  not  a  trained 
speaker,  and  I  have  been  at  a  loss  how  to  proceed  in  presenting  the 
ideas  that  I  have  in  mind. 

The  lihilosoph}'  of  finance,  the  metaphysics  of  currency,  I  have 
only  studied  in  a  way.  The  convictions  that  I  have  reached  are  the 
result  of  certain  experiences  in  my  life,  the  observations  which  I 
have  made,  and  the  reflections  which  were  the  natural  results  of 
that  experience  and  observation.  These  have  to  a  degree  been  con- 
firmed by  such  reading  as  I  have  been  able  to  indulge  in,  of  the 
works  of  those  who  are  wiser  and  understand  more  thoroughly  the 
principles  and  ])hil()S()])hy  of  the  subject  in  question,  and  so  I  have 
concluded,  at  the  risk  of  a))pearing  to  be  very  simple,  if  you  will 
184 


CURRENCY   lp:gislath>x.  185 

indulge  nie,  to  take  you  as  briefly  as  1  can  (jver  the  road  of  obser- 
vation and  experience  and  reflection  which  I  have  come,  that  you 
may  judge  thereby  of  the  merit  that  attaches  to  what  1  may  say. 
I  see  two  gentlemen  here  at  least  who  will,  quite  likely,  follow  me, 
if  I  give  them  time,  who  will  speak  of  the  matter  from  higher  stand- 
points of  what  I  would  call  the  philosophy  or  the  metaphysics  of 
money,  finance,  and  banking.  So  if  you  will  let  me  follow  my 
simple  road,  it  may  sound  a  little  personal,  but  1  can  not  help  that 

In  1854,  a  lad  of  18,  it  was  my  very  good  fortune,  as  I  regarded  it 
then  and  as  I  reoard  it  now,  to  become  emphn'cd  in  a  little  l)ank 
as  a  junior  clerk  m  the  State  of  New  York,  in  a  small  town  near  the 
center  of  the  State.  The  bank  had  S50,000  cajntal.  It  had  about 
$75,000  in  deposits,  and  it  had  a  right  under  the  law  to  issue  S50,000 
in  notes.  I  observed  that  the  business  of  the  bank  was  to  guard 
its  deposits  with  proper  reserves  in  money,  to  protect  its  deposit 
line,  and  to  guard  its  outstanding  notes  with  a  proper  reserve  to 
protect  them  when  presented  for  redemption.  There  were  two 
places  of  redemption  for  the  notes.  One  was  in  the  town  where 
the  notes  were  issued,  the  bank's  counter;  the  other  was  in  the  city 
of  New  York.  I  observed  shortly  that  the  l)ank  was  exceedingly 
cautious  about  the  use  that  was  to  be  made  of  the  credit  that  the 
bank  gave  out  to  its  customers  in  exchange  for  the  obligations  that 
it  took  from  its  customers. 

As  I  say,  like  all  banks,  it  was  restrained  in  its  operations  by  the 
limitation  of  its  reserve  money,  and  when  the  relation  of  tilings  was 
about  normal  or  satisfactory,  it  could  not  loan,  if  thereby  it  should 
be  obliged  to  take  its  reserve  money  and  hand  it  to  a  customer  in 
exchange  for  his  obligations,  for  that  was  giving  cash  in  exchange  for 
credit.  I  found  it  was  the  business  of  the  Ijaiik  so  far  as  possible  to 
give  credit  in  exchange  for  credit,  and  the  credit  made  by  tlie  ])ank  to 
the  person  who  gave  it  liis  obligation  being  put  upon  its  books  was 
likely  to  be  transferred  from  one  to  another  tlu'ough  the  instrumen- 
tality of  checks,  and  so  not  peril  or  prejudice  by  exhaustion  the  cash 
resources.  Such  credits  therefore  w^ere  fairly  given.  But  the  same 
rule  applied  to  the  issue  of  its  notes. 

A  borrower  came  to  the  ])ank  and  wished  to  make  a  loan.  He 
could  not  avail  himself  of  the  result  of  the  credit  if  placed  on  the 
bank's  book  and  availed  of  by  his  checks,  which  would  be  transfer- 
able in  the  field  of  circulation  which  limited  the  Ixmk's  business  hor- 
izon. In  such  a  case  circulating  notes  or  currency  could  be  perhaps 
utilized  for  the  borrower's  purpose,  and  perhaps  to  the  advantage  of 
the  bank,  and  the  question  always  arose,  "What  do  you  want  to  do 
with  the  proceeds  of  this  credit?"  If  the  man  wanted  to  borrow  and 
buy  securities  with  the  money,  if  he  wanted  to  borrow  and  pay  a  note 
in  the  next  town,  the  bank  ^\■ould  not  issue  to  him  its  notes;  it  would 
not  give  him  credit  upon  its  books.  In  short,  it  would  not  exchange 
its  credit  for  his,  l>ecause  it  was  easily  seen  that  through  the  instru- 
mentalities which  he  would  use,  whether  by  his  checks  or  by  the  notes 
which  they  would  give  him,  he  would  attack  and  de])lete  by  so  nuich 
the  cash  reserve  which  supported  and  protected  the  whole  line  of 
liabihty.  The  notes  would  attack  the  reserve  situation  by  going 
strictly  to  the  redemption  agent  in  New  York  and  there  l)e  redeemed. 
His  check  would  exhaust  the  reserve  by  being  collected  in  the  next 
town  where  he  save  his  check  in  payment  for  his  notes. 


186  CURRENCY    LEGISLATION. 

But  if  it  appeared,  as  in  very  many  cases  it  did  appear,  that 
man  wanted  currency  for  some  of  the  commercial  or  industrial  uses 
of  life,  like  the  payment  of  employees,  like  going  up  into  the  ''north 
woods,"  as  we  called  it  then,  to  pay  men  for  getting  timber  and  doing 
a  logging  business,  or  going  into  Indiana  to  buy  wheat,  or  into  Wis- 
consin for  that  same  purpose,  or  into  Ohio  for  the  purchase  of  wool, 
and  all  those  miscellaneous  purposes  which  go  to  make  up  the  prod- 
ucts of  industry,  and  start  them  forward  to  market,  then  by  the 
power  that  the  bank  had  to  issue  its  unissued  notes,  which  might 
still  lie  unused,  the  bank  was  glad  to  make  that  transaction,  and  the 
money  (bank  notes)  was  available  to  the  man  if  his  credit  was  good 
so  that  the  bank  was  willmg  to  take  the  risk.  But  so  jealous  was  the 
bank  as  to  the  use  of  these  notes  that  it  was  my  duty,  as  a  junior 
clerk  and  general  all-round  assistant,  to  take  the  bank's  notes  which 
were  brought  out  from  the  vault,  preparatory  to  giving  them  to  the 
borrower,  and  take  a  small  stamp  which  made  the  letter  E  or  X  or  Y, 
no  matter  which,  and  stamp  every  note  and  then  make  a  memoran- 
dum upon  a  book  kept  for  that  purpose  of  the  date  and  the  amount  of 
the  issues  and  how  marked,  and  as  those  notes  came  in  for  redemp- 
tion to  watch  the  average  time  of  circulation  which  they  would  enjo}'. 

I  did  not  perceive  the  relation  of  things  so  very  clearly  at  that  time, 
because  I  was  young  and  did  not  reflect  so  very  much.  Then  I 
went  to  Chicago  a  year  and  a  half  later,  and  after  two  or  three  years 
of  knocking  about  I  again  found  myself  in  a  bank  operating  under 
a  State  charter,  clothed  with  the  powers  of  a  trust  company  and 
savings  company,  but  with  no  power  to  issue  notes.  I  found  the 
situation  there  something  like  this:  A  great  variety  of  banks  and 
a  great  variety  of  currency;  there  were  notes  in  circulation  issued  by 
certain  banks  specially  chartered  by  certain  States,  doing  business 
and  issuing  notes.  There  was  the  State  of  Illinois  banking  system, 
which  was  called  a  system  of  free  banking;  that  is  to  say,  any  five 
persons,  I  think  it  was  five,  could  associate  together,  start  a  bank, 
notify  the  auditor,  put  up  some  State  bonds  of  any  of  the  sovereign 
States  of  the  United  States,  and  have  issued  to  it  currency  notes, 
strictly  in  accordance  with  the  formality  that  exists  regarding  the 
national-bank  notes  at  the  present  time. 

These  banks  so  chartered  and  organized  were  required  to  redeem 
their  notes  at  their  counter  and  not  elsewhere,  and,  with  a  very  wise 
or  discriminating  regard  to  the  responsibilities  of  redemption  by 
the  organizers  of  the  banks,  the  places  chosen  for  the  organization 
and  location  of  these  banks  were  generally  so  obscure  that  nobody 
would  dare  go  across  the  coimtry  with  the  notes  to  get  them  redeemed. 
And  1  believe  this  actually  resulted  in  the  course  of  that  business, 
to  wit:  A  group  of  men  ])utting  together  $1(X),()00  would  organize 
a  bank;  they  would  buy  the  bonds  and  deposit  them  with  the  audi- 
tor of  the  State,  draw  out  the  money  or  notes — they  were  not  in  the 
business  of  lending  much  money,  the  places  where  these  banks  were 
situated  didn't  have  much  business  to  do  generally — and  they  would 
take  the  notes  and  go  to  the  various  markets,  like  Chicago  or  else- 
where, and  buy  coiuinodities,  wheat,  corn,  flour,  ship  it  to  New  York, 
turn  it  into  the  money  of  the  country,  take  the  ])roceeds,  buy  in  the 
market  more  bonds  and  start  a  new  bank  by  putting  u])  the  bonds, 
get  some  new  currency,  and  do  the  same  thing  over  again;  so  that 
with  a  capital  of  .fsl  ()(),(J00  a  man  or  party  of  men  could  have  about  six 


CURRENCY    LKCilSLATlON.  187 

or  more  banks  and  be  cb'awing  interest  on  $()()(), 000  or  more  bonds. 
Ihit  they  were  brou<2;ht  forth  as  a  bank  note,  secured  by  the  sov- 
ereit^n  bonds  of  a  State,  and  people  took  the  money,  and  those 
taking  it  passed  it  off  on  somebody  else.  No  one  would  (^o  to  present 
it  for  redemption  at  the  place  it  was  issued. 

I  remember  an  incident  touching;  upon  that  ])articular  ])()int.  The 
institution  to  which  1  was  rehited,  havin*::  no  note  issue  and  being 
inimical  to  this  principle  of  currency,  organized  a  raid  u])()n  these 
various  banking  institutions,  so-called,  that  is  to  say,  it  sorted  their 
notes  and  by  special  messengers  sent  the  notes  home  for  redemption 
in  gold.  I  remember  specially  being  very  diligently  occupied  for 
some  days  in  sorting  out  tlie  notes  for  a  particular  bank  imtil  we  had 
accumulated  some  S25,000  or  $30,000  of  the  issue  of  the  bank  of 
Kushville,  I  believe  it  was,  and  three  men,  with  about  $30,000  of  that 
money,  started  for  the  bank  to  get  these  notes  redeemed  in  gold,  or 
bust  the  bank.  They  were  gone  about  ten  days.  Anxiety  sprang 
u])  in  the  minds  of  the  officers  of  my  institution  as  to  what  had  become 
of  these  men  and  the  money — particularly  as  to  the  money. 

At  the  end  of  about  ten  da3^s  the  men  returned  with  the  notes 
they  had  taken  away  and  explained  that  they  had  taken  the  pre- 
scribed route;  they  had  gone  by  rail  to  a  certain  place,  and  had 
taken  a  stage  and  had  gone  to  a  certain  other  place;  that  from  thence 
there  was  no  stage  line  over  to  the  other  place  where  the  bank  was, 
and  so  they  had  hired  a  private  vehicle  to  take  them  over  there, 
but  they  were  strangers  and  were  under  suspicion,  and  somebody 
smelled  out  the  object  of  their  visit  and  they  were  informed  by  a 
committee  of  men  that  if  the^^  came  down  there  "to  l)reak  their 
bank"  they  had  better  start  back,  because  neither  they  nor  their 
money  was  safe  on  any  such  kind  of  an  errand  as  that,  and  so  they 
prudently  returned.  I  found  then  that  a  bank  note,  even  if  secured 
by  the  bonds  of  a  sovereign  State,  was  not  naturally  a  virtuous  cur- 
rency, nor  was  it  naturally  responsive  to  any  of  the  requirements  of 
business  at  all,  but  it  was  issued  and  it  operated  upon  considerations 
entirely  distinct  and  separate. 

Now  I  found  that  there  was  another  institution,  or  rather  indi- 
vicUial  who  ran  a  bank,  and  his  name  was  George  Smith.  He  came 
from  Scotland,  and  I  presume  had  a  training  in  the  Scotch  system  of 
banking.  He  was  a  "canny"  man,  as  the  Scotch  are,  careful,  judi- 
cious, conservative,  and  wise.  He  had  a  limited  amount  of  money, 
probably  $100,000.  He  found  himself  in  a  community  rapidly 
developing,  for  the  comparatively  little  city  of  Chicago  was  the  center 
where  the  market  roads  from  the  country  naturally  focalized  and 
the  products  of  the  count r}'  were  coming  in  to  be  sohl  and  exchanged 
preparator}"  to  being  shipped  ]\v  the  water  routes  to  the  east.  He 
round  also  that  there  was  a  considerable  activity  in  the  way  of  build- 
ing around  the  cit}^;  it  had  its  little  factories,  and  its  warehouses,  and 
its  dwelling  houses,  and  so  forth.  He  found  an  absolute  poverty  in 
the  means  of  circulation.  Some  gold  had  been  brought  into  the 
country  and  circulated,  and  some  of  those  notes  I  have  been  speaking 
of  were  circulated,  but  it  was  as  expensive  to  the  banks  to  get  these 
notes  as  was  gold  itself;  that  is  to  say,  they  had  to  give  value  to  get 
them  equivalent  to  what  they  would  have  to  get  the  gold,  only  they 
could  get  them  easier. 


188  CURRENCY    LEGISLATION. 

George  Smith  conceived  the  idea  that  as  his  credit  was  estabhshed, 
as  he  understood  the  business  of  banking,  he  could  serve  the  com- 
munity usefully  and  with  profit  to  himself,  the  last  probably  being 
his  chief  motive — a  motive  that  animates  most  men.  He  had  no 
power  under  the  law  to  issue  notes.  But  there  are  ways  around  a 
law  oftentimes,  as  we  have  found  in  our  experience.  So  he  bought 
the  charter  of  a  bank  in  Georgia,  called  the  bank  of  Atlanta,  which 
had  a  right  to  issue  notes.  It  had  no  capital;  it  was  inert  and  sub- 
stantially dead.  He  bought  that  charter,  organized  the  bank,  and 
issued  to  George  Smith  from  time  to  time,  the  notes  of  the  bank  in 
exchange  for  his  obligations,  I  presume — I  never  knew  the  real 
inwardness  of  it — and  across  the  back  of  these  notes  he  stamped 
these  words:  ''Redeemable  in  gold  coin  at  the  oftice  of  George  Smith 
in  the  city  of  Chicago."  So  he  acquired  all  of  these  notes,  which  cost 
him  nothing  except  his  credit  with  the  Bank  of  Atlanta.  These 
notes  he  loaned  to  the  public  to  the  amount  of  something  like,  at  one 
time,  from  the  best  advice  that  I  can  get,  $1,500,000.  Those  notes 
were  the  most  popular  and  held  the  highest  degree  of  confidence  in  the 
minds  of  the  people  of  any  currency  extant  and  passed  current  in  that 
district  of  the  country  tributary  to  the  city  of  Oiicago.  He  continued 
this  business  for  a  number  of  years,  then  the  shadows  of  the  civil  war 
grew  black  and  ominous,  and,  canny  Scotchman,  as  I  said  he  was,  he 
smelled  danger  from  afar,  he  liquidated  his  bank,  he  redeemed  all  of 
his  notes,  he  paid  all  of  his  depositors,  and  he  went  home  to  Scotland  to 
enjoy  the  fortune  that  he  had  either  well  or  illy  earned  by  ministering 
to  the  industries  and  commerce  of  a  great  State. 

That  was  a  lesson  to  me  in  contrast  to  the  other  lesson  in  a  State 
bank  secured  circulation.  I  saw  a  credit  currency  issue,  with  proper 
assets  behind  it,  containing  only  the  elements  of  credit,  was  an  effect- 
ive, useful,  and  economical  agency  in  the  industrial  exchanges  of  the 
people. 

There  was  another  instance  near  by  that  enforced  upon  me  the 
same  proposition.  That  was  the  Bank  of  the  State  of  Indiana. 
The  Bank  of  the  State  of  Indiana  was  in  existence  in  those  times; 
Hugh  McCullough  was  president  of  it.  It  was  chartered  by  the 
State;  it  had  eighteen  branches,  and  at  all  those  branches  it  did 
business,  the  central  office  being  only  the  administering  bureau  for 
all.  It  had  a  right  to  issue  notes,  without  putting  up  any  of  the 
bonds  of  anybod^^,  to  the  amount  of  twice  its  capital  stock.  It  did 
business  and  performed  for  many  years  in  the  most  safe  manner  the 
functions  of  banking  in  the  State  of  Indiana  to  its  great  advantage. 
It  was  never  able  to  put  out  conservatively  and  safely  more  than 
half  of  the  limit  of  circulation  that  the  law  gave  it,  and  the  Bank  of 
the  State  of  Indiana  notes  were  recognized  in  the  New  York  market. 
The  notes  issued  under  the  secured  system  of  the  State  of  Illinois 
were  tabooed,  except  in  the  brokers'  offices,  at  a  discount,  in  the  city 
of  New  York  and  all  commercial  centers. 

I  became  acquainted  with  the  fact  that  the  State  of  Louisiana  had 
a  system  somewhat  similar  to  the  bank  of  the  State  of  Indiana;  that 
is  to  say,  tliey  had  a  credit  note  system  issue,  rec(iiiring  the  hanks  to 
hold  against  the  note  issue  33^  per  cent,  I  believe,  in  specie  and  two- 
thirds  in  good  commercial  bills,  not  stocks  or  bonds,  and  for  many 
years  that  bank  performed  its  function.  But  those  banks  mider  the 
Louisiana  system  were  finally  taxed  out  by  the  desire  of  the  Govern- 


CURRENCY  LEGISLATION.  189 

iiient  "to  t^et  revenue,"  if  that  was  the  real  desire  of  the  Government, 
and  retired — that  is  to  say  redeemed — all  their  notes,  organized  under 
the  national  law,  and  continued  their  operations  as  banks  in  a  manner 
much  less  efl'ective  to  the  general  community  than  they  had  performed 
it  before  Congress  tied  up  their  capital  by  compulsory  investment  in 
securities,  viz,  United  States  bonds,  to  become  hypothecated  1,000 
miles  from  home.  The  banks  of  the  States  of  Missouri,  Iowa,  and 
Ohio  were  similar  to  the  Bank  of  the  State  of  Indiana.  It  was  a 
credit  currency  system. 

As  a  clerk  in  this  bank  in  Chicago,  as  time  went  on,  it  was  my  duty 
to  sort  the  money,  to  keep  the  best,  pay  out  the  poorest.  That  is 
human  nature,  too.  The  money  we  saved  was  the  money  of  the 
Bank  of  the  State  of  Indiana  in  our  tills,  the  Bank  of  the  State  of 
Ohio,  and  of  Iowa,  and  New  England  money,  so  far  as  we  desired  to 
have  a  reserve  of  currency.  We  were  on  a  specie  basis  at  that  time 
nominally,  but  there  was  very  little  gold  in  the  reserves  of  the  banks. 
As  I  said  a  few  moments  ago,  in  the  beginning  the  pubhc,  especially 
the  State  of  Illinois,  thought  it  had  the  model  system  of  notes  secured 
by  bonds  of  the  sovereign  States;  but  a  change  came  over  the  situa- 
tion. State  bonds  began  to  depreciate  in  value  in  the  market.  The 
banks  that  I  have  described  in  the  State  of  Illinois  secured  by  these 
bonds,  one  after  the  other,  unable  to  find  gold  for  exchange  for  its 
notes  on  the  first  presentation  of  any  volume  of  these  notes,  straight- 
way suspended  payment.  Under  the  law  the  banks  were  closed  out 
and  the  auditor  sold  the  securities  for  the  benefit  of  the  note  holders. 
These  notes  were  in  considerable  volume  and  passed  through  the 
hands  of  our  bank,  and  day  after  day  we  sorted  these  notes  with 
reference  to  a  schedule  which  showed  the  value  of  the  securities  of 
each  bank;  w'e  sorted  out  and  kept  those  that  we  considered  the 
best  and  those  that  were  the  poorest  we  paid  out.  And  that  was 
human  nature,  anybody  would  have  done  it.  The  net  realization  to 
the  note  holders  under  that  system  of  the  State  of  Ilhnois  as  a  result 
of  liquidation  was  somewhere  between  40  and  50  cents  on  the  dollar. 

The  loss  to  the  note  holders  under  the  George  Smith  method  and 
the  Louisiana  system,  the  Bank  of  the  State  of  Indiana,  and  Iowa, 
and  Missouri  and  Ohio  was  nothing.  And  so  it  came  to  be  borne  in 
on  me  that  what  is  called  a  credit  currency,  which  enabled  a  bank  to 
give  its  credit  in  exchange  for  the  acceptable  credit  of  its  customers, 
properly  guarded  and  protected,  and  based  upon  sound  banking,  with 
honesty  and  integrity  upon  the  part  of  the  administrators  of  the 
credit,  was  the  truest,  best,  most  adequate,  and  practical  system  of 
banking  and  currency  as  compared  with  any  other.  Now,  1  think  I 
am  through  with  the  sketch  I  haA^e  indulged  in.  I  indulged  in  it 
simply  for  the  side  lights  which  it  may  furnish  to  the  consideration 
that  you  have  got  to  give  to  the  great  questions  of  bankino;  and 
currency,  which  it  is  your  special  duty  to  consider  and  determine. 

Now,  afterwards  the  Government  wiped  out  all  these  banks  of 
issue,  good,  bad,  and  indifferent,  b}-  taxing  them  out  of  existence  and 
introducing  the  national  currenc}'  s^-stem  which  is  now  in  vogue. 
So  charged  was  I  by  the  influences  of  these  things  I  have  been  speak- 
ing about — to  wit,  the  principle  of  credit  currency — that,  as  a  national 
banker,  when  I  came  mto  the  position  of  control  or  substantia]  con- 
trol of  a  large  institution  I  would  not  issue  notes  under  the  national- 
bank  act.     The  reason  wIia^  I  would  not  do  so  was  that  I  would  not 


190  CURRENCY    LEGISLATION. 

secure  part  of  my  liabilities  in  the  form  of  notes  by  especial  pledge 
of  the  property  of  the  bank  to  the  prejudice  of  those  whom  1  owed 
on  book  account.  The  profit  on  circulation  was  not  so  very  tempt- 
ing. If  it  had  been,  perhaps  I  would  have  fallen  like  most  all  my 
friends  did. 

Now  we  have  got  the  system  as  it  is.  Is  it  an  effective  system? 
Does  it  meet  the  needs  of  the  country?  Is  it  responsive  to  practical 
needs,  and  is  it  in  accordance  with  the  true  scientific  principles  which 
ought  to  govern  banking  and  banldng  functions?  They  say  every- 
thing is  relative,  and  a  comparison  is  the  best  way  to  show"  a  fact. 
Therefore  I  will  venture  to  refer  to  the  historical  operations  of  a  great 
bank  in  another  country — the  Bank  of  France — and  ask  you  to  look 
at  its  liistory  and  our  own. 

The  Bank  of  France  was  established  about  the  year  1803,  I  believe. 
It  has  the  power  substantially  unlimited  of  note  issue.  Its  credit 
notes  in  circulation  have  always  been  four  or  five  or  six  or  eight  times 
its  liabilities  on  its  books.  Its  notes  always  circidate  as  money  in  the 
community.  It  continued  undisturbed  through  the  revolution  of 
1830  of  Louis  Napoleon,  which  disturbed  the  political  condition  of 
France  to  its  center;  it  went  on  undisturbed  in  its  operations  and 
performed  its  functions,  viz,  to  give  its  obligations  in  exchange  for 
the  obligations  of  those  engaged  in  commercial  and  industrial  pur- 
suits, uninterrupted  by  the  coup  d'etat  by  w^hich  Napoleon  III  made 
himself  Emperor,  it  came  into  the  period  of  1870  and  1871  when  it 
saw  its  countr}^  devastated — nearly  ruined.  France  was  at  the  close 
of  an  exhaustive  and  futile  war,  its  enemy  was  in  possession  of  its 
capital,  the  country  was  under  duress  to  pay  a  thousand  million  of 
dollars  of  war  indemnity.  It  witnessed  the  rise  of  the  '"commune" 
with  its  regime  pf  bloodshed,  murder — of  course  all*  industries  suf- 
fered— commerce  was  afflicted,  and  misery  fell  upon  many  people, 
especially  in  the  besieged  cities,  but  the  bank  continued  its  functions 
uninterrupted,  without  any  panic.  It  did  suspend  specie  payments 
on  its  notes,  out  of  prudent  considerations,  to  control  or  to  a  degree 
put  a  limit  upon  the  foreign  export  of  gold,  but  at  no  time  during 
this  period  of  which  I  have  been  speaking  did  gold  in  France  or  on 
the  Bourse  at  Paris,  command  a  premium  so  high,  measured  in  the 
notes  of  the  Bank  of  France,  as  ordinary  paper  currency  commanded 
in  this  country  at  the  close  of  the  most  prosperous  years  the  country 
ever  knew. 

These  things  are  painful  contrasts,  and  the}^  need  to  be  inquired 
into.  Is  the  national  system  of  currency"  and  banking  as  now  operat- 
ing an  effective  system  ?  It  is  not  inviting  to  the  public  at  large,  for 
not  more  than  half  of  the  banking  institutions  and  those  who  desire  to 
engage  in  that  business  have  embraced  the  provisions  of  the  national 
banking  act.  We  have  6,500  national  ])anks  organized  over  the 
country.  They  are  each  inde])en(lent  institutions,  with  no  natural 
power  of  attraction  toward  each  other  by  any  law  of  self-interest.  On 
tlie  contrary,  as  quick  as  a  crisis  comes  they  become  charged  with  the 
influence  of  a  mutual  repulsion,  and. each  one  by  the  instinct  of  self- 
preservation,  or  a  narrow  self-interest,  begins  to  pull  out  of  the  com- 
munity the  elements  of  strength  for  itself.  They  refuse,  as  is  demon- 
strated completely  without  any  illustration — they  suddenl}^  refuse  to 
perform  the  functions  of  a  bank,  which  is  to  give  credit  in  exchange  for 
the  credit  of  the  community.     They  will  no  longer  extend  their  credit. 


CURRENCY   LEGISLATION.  191 

On  the  ooiitrnry,  they  insist  Uj^on  the  li(|ui(lation  of  cr(Mlits  due  to 
them  from  the  piibhc,  and  the  ruinous  loss  to  the  in(histrial  olasses — 
those  who  produce  from  the  soil,  those  who  work  in  the  factoiies  and 
those  who  are  employed  in  common  labor — can  not  be  measured  by 
any  rule  that  I  know  of.  We  only  know  it  is  enormous  and  that  the 
losses  and  adverse  consequences  which  are  so  plain  will  for  some  time 
be  continued. 

Now%  is  there  not  need  for  thorough  revision  ?  Do  we  not  want  to 
put  the  banking  and  currency  system  upon  the  basis  where,  if  you 
please,  the  creator  of  it  will  be  willing  to  trust  it  for  a  day  or  two? 
This  system,  created  by  the  Ciovernment,  supervised  l)y  the  Govern- 
ment, in  existence  for  forty-four  years,  with  plenty  of  opportunity 
to  observe  its  weaknesses  and  to  strengthen  it  at  points  where  it  was 
weak,  has  been  held  out  virtually  by  the  Government  to  the  people 
as  entirely  worthy  of  respect  and  confidence';  and  the  people,  to  the 
extent  of  four  thousand  five  hundred  millions  of  dollars,  as  evinced 
by  the  debts  of  the  national  banks,  have  taken  this  representation, 
or  this  implied  representation,  as  valid  and  have  intrusted  their  inter- 
ests to  that  extent  to  these  institutions.  Has  the  Government  set  the 
example  of  trust  and  confidence  in  these  institutions  it  created?  No. 
That  is  patent,  manifest,  and  notorious — never  to  the  extent  of  one 
dollar;  it  wdll  not  even  take  a  certified  check  on  the  best  of  its  crea- 
tures in  paj'ment  for  a  revenue  of  $100  coming  to  it  from  the  most 
responsible  citizen.  I  think  the  system  ought  to  be  revised  from  the 
beginning — that  is  to  say,  in  all  the  important  elements  that  consti- 
tute its  foundation 

I  shall  get  along  in  a  few  minutes — ■ — 

The'CHAiRMAx.  Do  not  mind  the  time. 

Mr.  Gage.  I  shall  get  along  to  a  point  where  it  will  appear,  and  I 
may  as  w^ell  anticipate  it  now,  that  I  am  opposed  to  the  measure 
originating  in  the  Senate,  which  is  offered  as  a  curative  of  the  evils 
and  weaknesses  that  inhere  in  the  system.  It  will  appear  further 
that  I  regard  the  bill  before  you,  known  as  the  "Fowler  bill,"  as  a  very 
comprehensive  measure,  containing  in  itself  evidence  that  the  author 
understands  clearly  and  explicitly  the  principles  which  underlie  the 
banking  and  currency  relations  of  the  United  ^States,  and  has  brought 
forth  a  measure  which  in  contrast  to  the  one  offered  in  the  Senate  does 
reach  to  the  fundamentals.  We  know  tluit  something  fundamental  is 
necessary — something  w^iich  will  make  the  national  banking  system  (if 
we  want  to  keep  it  going)  substantially  uniform  and  more  efTective 
in  its  application  to  the  country's  needs;  but  before  any  measure 
that  reaches  fundamentally  to  a  fine  foundation  can  be  inaugurated 
and  adop.ted  some  difhculties  and.  embarrassments  must  be  gotten 
out  of  the  way,  and  these  embarrassments  lie,  in  mv  opinion,  in  the 
relation  of  the  Government  itself  to  the  business  o^  the  community 
as  represented  in  the  banking  system. 

This  bill,  if  I  may  anticipate  what  I  may  say  later,  especially  pro- 
vides that,  and  by  an  easy  method,  without  expense  to  the  people, 
cuts  out  as  far  as  possible  these  artificialities  which  hinder  and 
obstruct  any  possible  uniform  national  system  of  banking  and  cur- 
rency. \Miat  are  those  artificiahties?  The  artificialities  that  I 
speak  of  not  only  impair  the  general  structure  of  banking  and  cur- 
rency, but  they  also  embarrass  or  are  likely  to  embarrass  the  Gov- 
ernment itself.     They  were  born  in  the  civil  war.     Of  what  do  they 


192  CURRENCY  LEGISLATION. 

consist?  First,  the  legal-tender  note — the  greenback.  If  it  were 
necessary  to  issue  them  in  the  beginning,  they  should  long  ago  have 
been  retired.  They  were  false  to  the  economic  requirements  of  a 
true  currency.  Legally  equal  to  gold  as  a  cash  reserve  for  banks, 
we  witness  the  anomaly  of  a  debt  obligation  issued  by  the  Govern- 
ment made  the  legal  basis  for  debt  obligations  issued  by  banks  to 
an  amount  four  times  as  great.  They  thus  weaken  the  foundation 
of  metallic  mone}',  on  which  the  fabric  of  our  whole  credit  sj^stem 
must  finally  rest.  It  is  perceived  that  noninterest  notes  payable  on 
demand  are  an  immediate  economy  over  time  obligations  charged 
with  interest,  and  this  benefit  the  people  refuse  to  surrender.  And 
of  course  we  know  that  there  is  a  sentiment  attaching  to  the  green- 
back— and  the  sentiment  is  a  high  sentiment,  it  is  a  good  sentiment, 
it  is  a  beautiful  sentiment — but  sentiment  and  business  are  not 
fellow-travelers.  They  go  on  difl^erent  platforms.  Not  that  business 
should  fall  below  honorable  and  true  sentiment  at  all,  but  justice 
and  truth  ai'e  the  true  basis  of  business- — not  poetry  or  philanthropy. 

Now-  observe  our  system  of  bank  notes.  It  is  a  device  that  we 
brought  in  at  a  time  of  distress  to  create  an  artificial  market  for 
United  States  bonds.  Their  issue,  volume,  and  use  bear  no  relation 
to  the  true  law  which  should  govern  in  the  field  where  paper  money 
performs  its  proper  functions. 

Now,  the  result  is  seen  in  two  directions.  In  the  first  place,  it  has 
artificialized  the  price  of  Government  bonds  to  an  extent  of  at  least 
20  per  cent,  measured  by  the  world's  standard  of  value,  as  found  in  a 
free  and  open  market  where  similar  securities  are  bought  and  sold. 
As  an  incident  to  this  artificialization  the  Government  has  become 
the  guarantor  of  payment  for  some  seven  hundred  millions  of  notes 
issued  by  more  than  6,500  so-called  national  banks.  This  is  a  false 
relation  in  my  opinion.  It  ought  not  to  exist  any  more  than  the 
Government  should  guarantee  insurance  policies  or  the  notes  of  cus- 
tomers that  a  bank  has  taken. 

Further,  by  the  drift  of  events,  and  through  political  pressure, 
there  has  been  injected  into  the  channels  of  our  circulation  some 
six  hundred  millions  of  silver  now  possessed  of  its  natural  commer- 
cial value,  measured  by  gold,  of  about  three  hundred  millions,  but 
maintained  at  parity  with  gold  through  the  Government's  pledge 
to  maintain  such  a  parity  balance.  Looked  at  from  the  Govern- 
ment's side  we  have  here  a  direct  or  contingent  liability  consisting 
of  United  States  notes,  $346,000,000  silver  currency,  parity  $300,- 
000,000,  national  bank  notes,  $700,000,000.  Of  course  this  liability 
is  not  menacing  or  embarrassing  to  the  Government  at  the  present 
moment  of  time,  and  is  not  likely  to  become  so,  proA^ided  we  can 
continuously  avert  foreign  or  domestic  wars,  and  provided,  further, 
that  the  channels  of  trade  where  money  circulates,  can  be  to  a  large 
degree  monopolized  by  the  greenbacks  and  by  silver,  or  silver  cer- 
tificates. In  such  a  case  the  Government  may  not  at  any  early 
period  experience  any  particular  embarrassment,  but  consideration 
ought  to  be  had  to  this,  viz,  we  recognize  that  a  strong  metallic 
chest  and  an  unimpeachable  credit  in  the  Government  is  as  essential 
to  success  in  war  as  is  our  Army  and  Navy. 

To  the  support  of  the  Army  and  Navy,  with  but  little  grumbling, 
we  contribute  substantially  a  hundred  million  dollars  a  year  for  each, 
but  for  the  economizing  of  a  few  millions  we  fail  or  refuse  to  put 


CURRENCY  LEGISLATIOK.  1'J3 

ourselves  in  the  strong  position  of  financial  defense  from  a  Govern- 
ment point  of  view  and  drift  along  in  a  position  which  it  must  be 
confessed  is,  and  everywhere  else  in  the  world  is,  charged  as  being 
a  weak  and  inexcusable  position.  It  is,  however,  to  the  reflex  effect 
upon  our  general  banking  and  currency  system  that  I  especially 
direct  your  thought.  I  have  said  that  the  path  to  a  more  perfect 
condition  in  banking  and  currency  is  blocked  by  the  artificialities 
developed  by  our  financial  legislation. 

Now,  there  would  be  no  proper  cause  for  complaint  about  it  being 
blocked  if  as  in  the  minds  of  many  people  it  is  conceived  to  be — that 
the  business  of  banking  goes  on  by  the  grace  of  the  privilege  granted 
by  the  Government  to  certain  favorite  persons,  who  exercise  the 
function  of  banker  to  exploit  the  people.  If  that  were  the  case,  the 
more  obstacles,  restrictions,  and  repression  the  better.  "\Mien  a  cor- 
rect understanding  takes  the  place  of  these  misa])prehensions,  then 
it  will  be  perceived  that  what  hinders,  restricts,  or  prevents  the  just, 
economic  exercise  of  the  banking  functions  interferes  to  embarrass 
an  agency  which,  next  below  production  and  transportation  in 
importance,  is  a  minister  to  that  industrial  life  wherein  our  material 
prosperity  must  be  found.  Now,  in  every  other  relationship  existing 
between  men,  we  know  that  there  are  natural  laws  which  spring  up 
by  virtue  of  that  relationship.  They  have  to  be  discovered  and 
recognized,  and  if  obeyed  they  brmg  in  peace  and  happmess.  It  is 
just  as  true  that  in  the  field  of  economics  and  m  the  field  of  banking 
and  currency  and  m  finance  generally  there  is  a  law  of  relationship 
which,  if  observed,  will  bring  in  the  highest  utility  and  usefulness  and 
prosperity,  but  which,  if  violated,  as  in  the  law  of  personal  relation- 
ships-between  men,  brings  in  disharmony,  confusion,  and  ultimate 
disaster. 

Now,  our  histor}^  for  the  last  forty  3'ears  suggests — in  fact,  it  demon- 
strates in  the  most  emphatic  way— that  our  banking  and  currency 
system  has  at  some  point  at  least  been  out  of  harmony  witli  the  true 
laws  which  should  govern  it. 

I  am  speaking  too  long  upon  that  subject. 

The  Chairman.  No;  it  is  the  sense  of  this  committee  that  you 
proceed  until  you  finish. 

Mr.  Gage.  Now,  the  national  banking  act  has  operated,  in  my 
opinion,  to  create  an  extraordinary  innovation  in  bank  credits,  to 
induce  the  banking  function  to  depart  very  widely  from  its  natural 
use,  which  is  to  minister  in  tlie  field  of  industry,  production,  and 
exchange,  and  has  built  up  an  enormous  fabric  of  bank  credits, 
represented  on  the  books  of  the  banks  chiefly  in  large  cities,  an 
artificiality,  and  on  this  great  artificiality  of  banking  now  rests  the 
immense   burden   of   securities,   fixed   in   form,    payable    at   remote 

Seriods  of  time,  that  have  no  relationship  whatever  directly  to  pro- 
uctive  industry  or  exchange.  How  does  it  do  this?  I  think  it  is 
plain.  Tlie  bank  notes  are  issued  to  a  bank.  It  gets  them  into  the 
field  of  circulation  in  any  way  it  can,  and  there  is  taken  out  of  the 
field  of  circulation  reserve  money  in  its  place,  and  this  reserve  money 
goes  into  the  vaults  of  tlie  bank  and  furnishes  a  basis  on  which  is 
built  up  an  artificial  structure  devoted  to  stocks,  bonds,  and  securities, 
to  which  I  have  just  referred. 

You  know  that  a  bank  can  carry  credit  in  tlie  centers,  the  reserve 
cities;  it  can  carr}^  liabilities  to  four  times  the  amount  of  its  reserve 

:!7S81— 08 1:]* 


194  CURRENCY  LEGISLATION. 

money,  and  you  know,  I  think,  without  my  describing  it  too  minutely, 
that  deposits  and  loans  are  almost  corollaries  of  each  other  to  a 
large  extent;  that  is,  a  credit  made  on  the  books  of  a  bank  in  the  field 
where  bank  credit  circulates  b}^  checks  and  drafts  can  be  swelled  up 
in  volume  with  reserve  money  one-quarter  as  large,  because  that 
credit,  so  called,  will  be  circulated  from  one  to  the  other  in  the  field 
of  operation  to  which  the  credit  relates — and  now  I  am  speaking 
broadly  about  the  field  of  bonds,  securities,  and  stocks,  and  that  sort 
of  thing.  There  is  no  difference  in  the  power  of  currency  to  inflate 
credit.  There  is  no  dift'erence  in  the  power  between  notes  secured 
by  bonds  and  notes  not  secured,  except  the  assets  of  the  bank. 
They  are  the  same  in  their  nature. 

Not  only  have  the  notes  thus  issued  by  the  Government  been 
used  to  take  reserve  money  out  from  the  field  of  circulation — I  mean 
the  active  field  where  people  pass  money  to  and  fro — but  they  have 
been  taken  over  bodily  to  a  large  extent  by  banking  institutions  that 
are  not  under  the  national  law  and  counted  by  them  as  though  they 
were  legal  reserve  money.  There  is  nothing  to  hinder  them  from 
doing  it,  and  the}'  argue  in  a  manner  to  justify  this.  They  say 
these  notes  issued  by  the  banks  are  better  than  greenbacks.  They 
are  secured  by  obligations  that  draw  interest  anyhow,  and  the  green- 
backs are  not.  They  are  secured  by  the  assets  of  the  bank  in  addi- 
tion. The  greenback  is  not.  They  are  secured  by  the  Government 
guaranty  of  payment  and  by  a  5  per  cent  redemption  fimd  held  by 
the  Government,  and  so  directly,  not  indirectly,  but  directly,  by 
counting  these  notes  as  legal  money,  the  State  institutions  take  them 
and  use  them  and  inflate  book  credit,  and  we  entertain  the  delusion 
that  is  very  popular  that  we  are  a  very  rich  people  because  the  people 
have  got  thirteen  thousand  millions  of  money  in  the  banks.  I'hat  is 
folly.  They  have  thirteen  thousand  millions  of  credit  there,  and 
against  those  credits  the  banks  hold  against  the  people  obligations 
that  they  can  compel  them  to  pay  for  about  thirteen  thousand  mil- 
lions, and  when  all  these  debts  are  settled  the  whole  business  dis- 
appears. So  we  have  not  got  thirteen  thousand  millions  of  money 
in  the  banks. 

If  what  I  have  so  far  stated  has  been  a  fair  and  true  explanation 
as  to  the  situation,  what  are  you  going  to  do  about  it?  Let  it  drift? 
We  have  drifted  over  the  rocks  several  times.  We  drifted  over  them 
in  1873  and  struck  the  rocks  pretty  hard.  We  drifted  over  them  in 
1890  and  got  a  slight  shock.  In  1893,  from  entirely  other  causes,  our 
financial  ship  bumped  very  badly.  In  1907  w^e  were  on  the  deep 
waters  of  prosperity,  where  everytliing  ought  to  have  floated  serenely, 
but  we  bumped  hard.  We  stove  open  the  bottom  of  the  ship.  We 
met  with  first-class  disaster.  Are  we  going  to  keep  drifting,  or  are 
we  going  to  do  something?  Shall  what  we  do  be  comprehensive,  or 
shall  it  be  a  mere  makeshift?  Shall  the  artificialities  that  have  gone 
on  for  forty  years  be  replaced  by  some  other  artificiality,  or  shall 
we  consider  and  see  if  we  can  not  in  some  way  establish  foundations 
harmonious  and  c(^nsistent  with  the  true  laws  that  govern  the  whole 
subject? 

Ihere  are  two  measures  that  are  proposed  to  Congress  now.  There 
may  be  others  that  I  have  not  heard  of.  The  one  is  the  Senate  bill 
introduced  by  Mr.  Aldrich;  the  otiier  is  the  House  bill,  which  I  hold 
in  my  hand,  introduced  by  the  chairman  and  referred  to  you.  Both 
bills,  I  think,  are  now  before  the  committee,  are  they  not  ? 


CURRENCY   LEGISLATION.  195 

The  Chairman.  Xo;  the  wSenate  1)111  has  not  come  over  to  us. 

Mr.  Gage.  The  Aldrich  hill,  1  think  will  he  clear  enough  from 
what  I  have  said,  I  have  no  sympathy  with  at  all.  1  do  not  think 
it  is  curative.  I  do  not  think  it  is  curative  of  our  evils.  At  hest  it 
is  a  patch  or  a  panacea,  if  it  even  be  a  panacea,  wliich  once  in  ten 
years  may  be  availed  of  when  the  country  is  in  a  condition  of  intense 
panic,  and  when  many  of  the  evils  of  the  panic  are  developing  and 
existing,  and  it  may  not  be  effective  then.  In  the  meantime,  if 
adopted,  it  probably  puts  us  to  sleep.  It  is  a  gentle  narcotic  that 
woos  the  community  into  a  false  rej^ose,  I  think,  from  which  we  will 
suffer  many  a  nightmare,  from  w liicri  we  will  awaken  at  last  in  trouble 
and  real  agony. 

Now,  in  contradistinction  to  that  measure,  there  is  this  bill,  wliich, 
as  I  said  a  little  while  ago,  reaches  to  the  foundation  of  things  and  it 
eliminates  two  of  the  artificialities  which  I  referred  to  as  blocking 
the  road  to  reform.  It  eliminates  gradually,  or  at  an  early  period  of 
time,  the  legal-tender  notes  without  expense  to  the  Government, 
thi'ough  a  tax  upon  circulation — but  you  are  all  familiar  with  the 
bill  and  1  shall  not  particularize  much  about  it.  It  forms  a  fund 
which  will  be  applied  without  cost  to  the  Government,  to  convert 
those  $346,000,000  of  greenl)acks  against  which  $150,000,000  of  gold 
noAV  rests,  into  gold  certificates,  and  especially  it  operates  to  put  in 
the  foundation  of  our  bank  credit  the  only  foundation  that  can 
properly  be  used  there  under  our  present  standard,  viz,  gold.  It 
eliminates  and  takes  out  of  existence  the  present  national  bank  note 
currency.  It  operates,  if  it  is  to  become  a  law,  to  impound  the 
present  United  States  2  per  cent  bonds,  amounting  to  about  $700,- 
000,000,  iii  such  a  way  that  they  would  never  be  competitive  with  a 
new"  Government  loan  in  the  case  of  a  foreign  or  domestic  war. 

Thus  the  Government  would  face  a  situation  then,  with  this  law- 
operating  and  established  essentially  and  radically  different  from 
what  it  occupies  now,  manifestly  stronger.  It  would  have  no  com- 
plications by  reason  of  a  demand  debt  of  $346,000,000,  and  it  would 
withdraw  it  entirely  as  a  guarantor — as  a  guarantor  of  bank  notes. 
Therefore  it  would  manifestly  strengthen  the  Government  and  elimi- 
nate it  as  an  obstacle  from  the  free  operation  of  the  banking  and  cur- 
rency principle  which  is  sought  to  be  established  by  this  bill. 

It  does  more.  The  measure  operates  to  coordinate  the  banks  of 
this  country  and  take  away  that  tendency  in  a  time  of  strain  to  repel 
each  other,  each  one  grabbing  for  its  own  life,  for,  if  you  remember, 
the  bill  divides  the  country  into  twenty  districts,  and  it  aililiates  those 
banks  in  a  way  together  by  making  each  one  of  them  redeem  its  own 
circulating  notes  at  a  given  convenient  city.  It  establishes  a  govern- 
ment over  these  local  institutions  by  a  body  elected  by  themselves, 
consisting  undoubtedly  of  the  men  of  intelligence,  power,  and  strength 
in  the  respective  banking  districts.  It  causes  them  to  appoint  a  man. 
well  paid,  selected  with  reference  to  his  endowment,  whose  business  it 
will  be  to  examine  and  inspect  and  report  to  the  local  government  of 
that  district  the  conditions  and  methods  of  business,  the  personal 
characteristics  and  qualilications  of  those  who  administer  in  that 
important  field.  It  puts  upon  the  banks  of  this  district  a  penalty  for 
a  lack  of  fidelity  and  faithfulness  in  doing  its  work,  because  it  requires 
that  particular  district  to  furnish  20  per  cent  of  the  loss  occasioned  to 
depositors  or  note  holders  by  any  bank  in  the  district. 


196  CURRENCY  LEGISLATION". 

The  Chairman.  Ten  per  cent. 

Mr.  Gage.  Ten  per  cent.  I  always  tliink  of  this  as  20  per  cent, 
because  I  think  it  should  be  20.  It  puts  them  under  a  penalt}"  of  10 
per  cent  for  default  to  the  creditors  of  auA'  one  of  their  number,  and 
makes  them  share  ahke  with  all  the  rest  of  the  banks  in  the  country 
for  the  difference  of  SO  per  cent.  These  representatives  of  these  dis- 
tricts, 20  or  10 — and  I  am  going  to  say  20,  you  can  call  it  10  if  you 
want  to — meet  together  under  the  terms  of  the  bill  from  various 
parts  of  the  countr}'  twice  a  year 

The  Chairman.  It  ought  to  be  four  times. 

Mr.  Gage.  Well,  they  meet  occasionally  at  stated  periods.  These 
agents  who  are  the  administrative  ofhcers  of  these  centers  are  sup- 
posed to  have  imparted  to  them  the  powers  that  exist  in  a  deputy 
controller.  Under  the  jurisdiction  of  the  controller  liimself  these 
representatives  are  acquainted  thoroughly  with  the  methods  and 
administrations  of  these  various  districts  and  the  working  of  the 
machinery  of  the  banking  meet  together  and  compare  notes.  Would 
not  it  be  a  most  useful  source  from  which  to  derive  accurate  knowl- 
edge and  get  information  as  to  what  was  required  in  the  way  of  reform 
and  improvement  of  this  method,  that  method,  or  the  other  method 
in  different  districts  of  the  country^     It  certainly  would. 

The  stumbling-block  in  the  bill  to  most  everybody,  at  first  blush, 
is  the  guaranty  of  deposits.  It  stumbled  me.  I  fell  right  down 
over  that.  I  said  never,  never;  no,  that  won't  do.  You  are  not 
going  to  make  a  black  man  as  good  as  a  white  man  by  just  washing 
him.  But  I  reflected  on  this.  I  studied  this  bill,  and  I  am  per- 
suaded that  it  is  just,  equitable,  wise,  and  right  that  the  creditors  of 
the  banks  which  come  under  the  provisions  of  this  bill  will  have  their 
deposits  guaranteed  to  them  as  will  be  the  bank's  circulating  notes  held 
by  the  general  public.  The  nature  of  the  obligation  from  the  bank 
is  exactly  the  same  in  principle  whether  evidenced  by  a  pass  book  or 
by  the  bank's  notes  in  the  form  of  circulating  money;  there  is  no 
difference  in  the  principle.  It  may  be  urged  that  the  man  deposit- 
ing had  the  right  of  selection,  and  he  acted  upon  his  own  volition, 
but  when  he  took  the  note  he  was  under  coercion.  There  is  a  cer- 
tain plausibility  in  the  argument,  but  where  there  is  only  one  or  two 
banks,  or  only  three  banks,  there  is  not  much  right  of  choice  when  a 
man  is  imder  coercion  of  a  business  necessity. 

The  provision  for  the  redemption  of  notes  under  this  bill  seems  to 
me  to  be  scientific,  complete,  and  efi'ective  in  that  it  provides  out  of 
a  general  fund  the  expenses  incidental  to  sending  the  notes  from  the 
place  where  they  may  be  held  to  the  place  of  redemption,  and  if 
you  were  a  banker  you  would  imderstand  how  restraining  it  is  to 
pay  50  cents  or  75  cents  or  SI  express  charges  on  the  money  that 
you  want  to  have  redeemed.  Some  pressure  must  come  before  they 
Avill  do  it.  The  bill  puts  the  cost  upon  the  issuing  bank  of  express 
charges  if  it  gets  its  notes  out  to  distant  points. 

It  forbids  under  heavy  penalty  the  counting  of  a  dollar  of  credit 
notes  to  be  issued  under  this  bill  as  a  part  of  a  bank's  reserves. 

And  it  does  another  very  important  thing,  in  my  estimation.  It 
will  draw  into  the  banks  some  five  or  six  hundred  millions  of  dollars 
of  reserve  money  to  strengthen  the  volume  of  liabilities  that  now 
exist  in  the  banks  of  the  country  as  a  whole — State  and  national — 
without  giving  any   additional   power  to  expand.     And  when  you 


CURRENCY   LEGISLATION.  197 

think  of  the  many  hunks  in  this  country  opcrutiiif;  \sitli  reserves  of 
6  or  7  per  cent  only,  yon  see  how  weak  the  foundation  of  the  great 
credit  structure  is  on  whicii  we  are  restin<^. 

Now,  I  have  told  you  a  little  story  of  my  experience  and  how  I 
came  to  look  at  things  this  way.  I  think  that  the  gentlemen  who 
will  follow  me  will  give  you  some  scientific  reasons  upon  the  subject 
that  I  have  not  indulged  in. 

But  if  I  were  in  a  bank,  clothed  with  the  responsibility,  which, 
thank  God,  I  am  now  fi-ee  fi"om — for  it  is  a  ^reat  responsibility  to  a 
man  who  appreciates  it  and  carries  it — if  i  had  the  responsibilitv 
upon  me,  and  haunted  by  the  fear,  as  I  always  have  been  haunted, 
that  by  some  concatenation  of  circumstances  I  might  go  to  ruin  and 
default,  by  so  much  destroying  the  general  welfare  and  causing  loss 
to  my  depositors,  if  I  desired  as  I  should  to  promote  conservatism  in 
the  methods  of  banking,  if  I  wanted  to  bring  them  back  to  the  exer- 
cise of  then-  natural  function,  viz.,  to  the  exchange  of  its  credit,  I 
would,  as  a  banker,  ask  to  come  under  the  provisions  of  this  act  and 
I  would  look  with  dread  and  apprehension  if  the  bill  offered  in  the 
Senate  should  become  a  law,  for  if  adopted  the  curative  work  which 
can  now  be  accomplished,  or  at  any  rate  undertaken,  under  this  bill 
would  not  be  possible. 

Now,  it  seems  to  me  that  this  is  the  critical  hour.  As  I  said  in  the 
beginning,  I  believe  we  have  approached  in  our  industrial  and  com- 
mercial life  a  crisis — a  crisis  in  our  legislative  function  in  its  relation 
to  banking  and  currency.  We  are  not  in  a  political  panic,  and  we 
do  not  \\  ant  to  get  into  any.  We  want  to  look  at  the  thing  fi"om  the 
fundamental  principles  and  the  law  of  true  economics,  and  to  be  gov- 
erned by  wisdom  and  without  prejudice,  and  to  do  our  duty  as  we 
are  able  to  see  our  duty. 

Now,  I  have  talked  too  much,  and  if  you  want  to  ask  me  any  ques- 
tions, go  ahead. 

Ml'.  Weeks.  I  would  like  to  ask  a  question.  If  you  were  president 
of  the  Fu'st  National  Bank  of  Chicago,  and  the  Aldrich  bill  passes, 
would  you  buy  bonds  with  the  possibility  that  you  mi^ht  want  to  use 
them,  or  would  you  wait  until  the  time  came  and  tlien  depend  on 
piuchasing  them  ? 

Mr.  Gage.  In  the  case  of  the  First  National  Bank  of  Chicago  I 
should  not  buy  any,  because  they  have  got  too  many  now.  They 
have  got  an  overstock.  If  I  were  in  a  country  bank — if  I  may  step 
aside  from  the  particular  case  of  the  First  National  Bank — if  I  were  in 
a  country  bank  where  I  stood  pretty  close  to  the  producers,  where  the 
goods  of  commerce  originatecl,  small  factories,  and  where  capital  is 
scarce,  and  where  my  function  as  a  banker  was  necessary  to  tne  wel- 
fare, industry,  and  happiness  of  that  locality,  I  would  take  my  chances 
on  going  broke  before  I  would  take  $100,000,  if  you  please,  if  that 
was  my  proportion  of  this  supposed  relief,  and  tie  it  up  m  bonds,  thus 
leaving  my  constituents  without  the  facilities  I  can  now  furnish  them 
and  so  taking  from  them  the  use  of  my  banking  power  for  an  indefinite 
period  of  time. 

Mr.  Weeks.  This  is  a  pretty  practical  proposition.  The  people  of 
this  country  are  satisfied  that  the  circulation  now  existing  is  good. 
Do  you  think  it  would  be  judicious  for  Confess  to  pass  the  Fowler 
bill  substantially  as  it  is  in  its  entirety  and  practically  change  our 
circulating  medium  at  one  jump? 


198  CURRENCY   LEGISLATION, 

Mr.  Gage.  Yes.  I  tliink  the  people  would  look  upon  $700,000,000 
of  bonds,  if  that  is  the  way  it  figures  up,  as  security  for  note  redemp- 
tion guaranty,  and  for  deposits,  with  perfect  complacency.  They 
would  be  very  unreasonable  if  they  did  not. 

Mr.  Waldo.  If  the  Fowler  bill  were  passed  according  to  its  present 
terms,  it  would,  in  effect,  do  away  with  all  other  banks,  wouldn't  it? 

Mr.  Gage,  It  would  be  its  hope  that  it  would. 

Mr.  Waldo.  Granting  the  right  to  administer  trusts  and  to  accept 
savings  deposits,  and  so  on 

!Mr,  Gage.  It  would,  as  drawn,  3'es. 

jVIr.  Waldo.  It  would  do  away  with  State  banks  and  State  insti- 
tutions ? 

Mr,  Gage.  Yes.  I  confess  when  I  come  to  the  savings-bank  fea- 
ture I  have  a  little  of  what  you  might  call  the  staggers,  because  I 
do  not  think  that  an^^body  ought  to  take  the  savings  of  the  poor  for 
profit.  That  fund  which  constitutes  the  savings  of  the  industrial 
classes,  the  benefit  of  it  ought  all  to  go  to  them  as  it  does  vmder  the 
system  of  New  York  State,  and  I  think  New  Jersey 

The  Chairman.  Nothing  in  New  Jersey  to  speak  of.  There  are 
only  a  few  banks  there. 

!Mr.  Gage.  Therefore  I  think  it  would  be  a  happy  circumstance  if 
the  New  York  savings  banks  will  all  go  on  uninterrupted  and  not  be 
impinged  upon  by  anj^thuig  else,  because  I  think  it  is  most  equitable 
to  the  depositors  and  is  safe  and  for  the  interests  of  the  poor — I  mean 
the  employed  classes — as  safe  as  an}'  that  could  be  inaugurated.  But 
outside  of  New  York  City  (where  that  fund  is  vast)  it  might  be  inaugu- 
rated, as  in  this  bill  it  is  provided,  without  particular  prejudice. 

Mr.  Waldo.  The  only  ciuestion  with  me,  Mr.  Gage,  is  as  to  whether 
doing  this  through  the  complication  of  the  savings  and  trust  com- 
panies and  national  banks,  wouldn't  it  tend  to  turn  into  permanent 
investment  the  business  of  the  banks  instead  of  having  them  attend 
strictly  to  commercial  and  industrial  business?  W'hat  do  you  think 
about  that  ? 

Mr.  Gage.  I  think  not  under  the  provisions  of  the  bill,  for  it  per- 
mits them  to  take  money  on  short  time — three  months — that  is,  in 
the  trust.  I  would  like  to  say  there  that  the  banks  are  doing  that 
same  thing.  I  can  not  describe  it  to  you  exacth%  but  the  First 
National  Bank  of  Chicago,  perceiving  that  they  were  threatened  with 
ruin  b}^  the  competition  of  the  trust  companies  and  savings  com- 
panies— I  mean  ruin  to  the  profits  of  their  business — they  said,  we  must 
nave  some  power  ourselves.  And  by  an  ingenious  device  or  method 
they  took  SI, 000, 000  of  their  assets  and  divided  them  among  their 
shareholders,  and  with  that  they  incorporated  under  a  law  of  the 
State  a  trust  and  savings  bank.  It  is  separate  and  distinct,  but  it  is 
really  managed  by  them,  and  the  proilts  go  to  the  bank.  The  trust 
savings  companv  started  with  $1,000,000  capital,  and  it  has  doubled 
its  capital,  and  it  has  $500,000  of  surplus,  and  it  has  about  $40,000,000 
of  liabilities.  Othes  banks  are  broadening  upon  that  example,  and  it 
will  be  a  common  practice  in  the  fullness  of  time. 

But  that  is  not  the  ])oint  that  just  occurred  to  me.  We  expect  to 
get  a  coordination  of  ail  the  banks  under  a  guaranty  of  deposits. 
What  does  happen,  and  what  will  hai)])en,  ])robably  more  and  more — 
it  may  not  always  happen — but  a  few  months  ago,  perhaps  two  years 
ago,  there  was  an  institution  in  Chicago,  the  Chicago  National  Bank, 


CURRENCY  LEGTSLATTOX.  100 

of  which  Mr.  Walsh  was  president.  It  had  been  in  husiness  many 
years.  The  agency  of  the  Government  had  been  lookino;  at  stated 
periods  into  its  assets,  and  for  a  long  time  he  had  been  violating 
ever}'  law  pretty  nearly,  and  Mr.  Walsh  had  been  advised  by  letters 
written  to  him,  which  he  had  respectfully  answered  and  had  gone 
on  just  the  same.  But  a  crisis  was  finally  reached  when  it  came  to 
the  knowledge  of  the  Chicago  banks  and  the  Clearing  House  Associa- 
tion, of  Avhich  he  was  a  member,  that  AValsh's  affairs  were  terribly 
mixed  up,  and  he  was  in  a  ''bad  way." 

I  think  it  crept  out  from  the  Comptroller's  office,  or  he  felt  a  little 
weak  and  sent  somebody  to  take  hold  of  it,  and  the  clearing-house 
committee  of  a  Saturday  night  went  over  and  demanded  of  ^Valsh 
a  look  at  his  assets,  a  demand  he  coidd  hardly  resist,  since  the  Comp- 
troller's authority  was  on  top  if  he  did  not  respond.  Thcv  examined 
them  and  they  found  this  situation:  He  owecl  .f 27,000,000.  He  had 
the  highest  credit.  He  had  city  and  county  funds,  park  funds,  State 
funds,  and  other  funds,  and  the  more  intelligent  of  the  bankers 
who  looked  over  the  assets  hurriedly  knew  that  there  would  prob- 
ably be  a  loss  if  the}^  took  over  his  assets  and  assumed  his  liabilities, 
but  they  thought  it  woidd  not  do  to  allow  that  bank,  in  the  fair, 
open  sunlight  of  day,  going  on  and  doing  business  and  accumulating 
these  large  liabilities  under  the  auspices  of  the  Government,  to  fall 
down  and  fail  to  pay  and  thus  make  an  explosion  in  the  financial 
world;  so  with  the  advice  of  some  of  the  best  business  men  in  Chicago, 
among  them  IMarshall  Field,  having  got  from  the  directors  all  the 
pledges  the}^  could  get  from  them  and  the  turning  over  of  all  the  col- 
lateral from  the  directors  they  could  get  them  to  turn  over,  they 
took  over  from  the  bank  the  whole  "caboodle"  of  assets  and  assumed 
and  paid  with  no  delay  the  liabilities  of  the  Chicago  National  Bank. 

They  did  that  under  the  worst  kind  of  circumstances,  viz,  where 
there  had  been  years  and  years  of  business  which  they  had  no  ability 
to  ascertain  or  find  out  about,  they  thought  it  was  for  their  interests 
of  guarantee  the  deposits  of  John  Walsh,  with  the  absolute  certainty 
to  loss,  and  if  you  want  to  buy  the  claims  of  some  of  those  banks  at 
a  considerable  discount  I  will  agree  to  negotiate  them  for  you.  Well, 
they  learned  a  lesson,  and  they  adopted  another  principle,  a  prin- 
ciple provided  for  in  this  bill.  By  the  vote  and  the  voluntary  com- 
pliance by  all  the  members  of  the  Clearing  House  Association,  they 
authorized  the  clearing  house  at  any  time  and  at  stated  periods  to 
act  upon  its  own  volition  and  on  its  own  account  and  for  the  infor- 
mation of  the  clearing-house  committee  itself  to  have  a  full,  complete, 
and  comprehensive  investigation  of  each  member  of  the  association, 
and  not  only  of  each  member  but  of  every  institution  that  carries  the 
name  of  bank  over  it  that  is  cleared  or  represented  in  the  clearing 
house  by  a  clearing-house  bank,  and  I  can  tell  you  as  a  safe  j)rophecy 
that  we  are  at  the  end  of  disastrous  failures  in  the  city  of  Chicago 
by  clearing-house  banks  since  this  regime  has  come  in.  I  am  told 
that  Kansas  City  has  the  same  thing.  And  other  cities  will  eventually 
adopt  it. 

The  Chairman.  And  at  St.  Louis. 

Mr.  Gage.  Now,  they  are  doing  as  Saint  Paul  says,  without  the 
knowledge  of  the  law  as  it  is  required  by  the  law:  they  are  under 
grace,  or  something  like  that.  But  the  law  ought  not  to  create  so 
very  much.     It  ought  to  discover  and  recognize  and  sanction.     Men 


200  CURRENCY   LEGISLATION. 

who  have  hved  in  a  free  state  for  a  long  time  work  out  those  rules  and 
plans  of  action  between  themselves  which  are  perhaps  on  the  whole 
the  best  for  them.  These  when  just  should  be  sanctioned  by  the  law 
and  made  universal. 

But  what  I  have  just  referred  to  as  the  Chicago  National  Bank  is 
not  extreme.  They  hung  a  man  in  Baltimore  many  years  ago.  He 
was  a  banker  and  failed,  and  the}'  hung  him  to  a  lamp-post,  and  I  don't 
think  there  has  been  any  bank  failures  in  Baltimore  since.  They 
cooperate  and  talk  each  other  over  and  see  to  each  other  before  they 
fail.     Under  this  bill  they  will  see  to  each  other  before  they  fail. 

Mr.  Weeks.  Don't  you  think  that  it  is  the  fault  of  the  Govern- 
ment that  the  condition  existed  that  did  exist  in  the  Chicago 
National  Bank? 

Mr.  Gage.  Why,  yes,  you  might  say  so,  but  the  Government  is 
impersonal  and  its  agencies  are  perfunctory;  they  are  human  and 
the  law  is  not  very  thorough.  The  Comptroller  can  under  the  law,  I 
believe,  have  a  national  bank  go  under  a  receiver  provided  that  they 
fail  to  pay  one  of  their  circulating  notes  and  it  goes  to  protest.  I 
think  if  a  bank  goes  under  its  reserve  for  thirty  days  and  fails  to 
make  good,  after  being  notified  by  the  Comptroller,  if  I  remember 
right — I  am  a  little  rusty — an  application  might  be  made  for  a 
receiver.  He  can  ruin  any  bank  if  he  has  a  mind  to,  by  having  his 
examiner  take  possession  of  it,  but  I  do  not  know  of  any  law  for  it. 

The  Chairman.  With  reference  to  ^Ir.  Walsh's  banking  connec- 
tions in  Chicago,  is  it  not  true  that  he  had  under  his  administration 
two  other  banks  than  the  Chicago  National,  and  it  was  through  the 
manipulation  of  the  assets  of  those  banks  that  he  was  able  to  bor- 
row— how  much  from  the  three  banks? 

]Mr.  Gage.  I  think  about  five  or  six  millions.  He  had  an  institu- 
tion incorporated  under  the  law,  with  a  beautifid  name,  the  Equitable, 
a  fine  name — the  Equitable  Trust  Company — and  in  that  he  gathered 
money  which  the  Chicago  National  Bank  knew  how  to  use,  or  rather, 
ISIr.  Walsh,  in  constructing  certain  railroads.  He  had  another  insti- 
tution to  gather  money,  called  the  Home  Savings  Bank,  I  think,  and 
what  they  gathered  in  were  contributing  elements  of  strength  like- 
wise to  the  Chicago  National  Bank. 

^Ir.  Waldo.  There  is  another  question  I  would  like  to  ask,  and 
that  is,  whether  the  gold  reserve  of  any  bank  ought  not  to  be  kept 
in  the  vault  of  the  bank  instead  of  being  deposited  in  some  other 
bank,  where  a  part  of  it  ma}^  be  loaned  under  the  present  law,  and  I 
think  under  this  bill. 

Mr.  Gage.  This  bill  strengthens  that  in  the  manner  that  I  speak 
of,  and  I  \\ould  answer  your  question  that  we  allow  too  much  ot  the 
reservation  to  lie  at  rest  in  the  hands  of  some  other  bank;  but  a 
portion  of  the  reserve  miglit  thus  lie  in  a  system  that  was  well  estab- 
lished and  perfected. 

Mr.  Waldo.  And  it  is  true,  isn't  it,  under  the  present  law,  that  the 
money  that  is  deposited  in  central  reserve  cities  can  be  loaned  up  to 
75  per  cent? 

Mr.  Gage    Yes. 

Mr.  Waldo.  So  that  when  the  reserve  is  not  with  the  bank  that 
owns  it,  there  is  but  25  per  cent  that  is  in  actual  existence? 

Mr.  Gage.  That  is  right,  and  that  is  what  causes,  with  the  annual 
returning  crop  movement,  a  crisis  and  a  threatened  panic  in  Wall 
street  year  after  year — that,  and  because  there  is  no  svstem  of  credit 


CURRENCY  LEGISLATION.  201 

currency  which  is  held  in  reserve  from  which  to  distrilnite  the  credit 
in  whatever  manner  it  should  be  distribvited. 

Mr.  Waldo.  The  amount  of  reserve  that  is  held  in  New  York  City 
at  the  only  times  when  it  is  needed  in  the  country  is  small — between 
two  and  three  hundred  millions. 

Mr.  Gage.  More  than  that;  between  three  and  four. 

Mr.  Waldo.  So  that  in  the  fall,  when  that  is  needed  by  the  country, 
saying  it  is  four  hundred  millions,  there  is  only  actually  in  existence 
in  New  York  one  hundred  millions  out  of  the  four  hundred? 

Mr.  Gage.  That  forms  the  reserve  for  that  four  hundred;  yes. 

Mr.  Waldo.  So  that  the  banks  of  the  country  that  are  supposed 
to  have  four  hundred  millions  of  reserve  as  a  matter  of  fact  only 
have  one  hundred  millions  in  actual  existence. 

^Ir.  Gillespie.  I  understand  that  you  consider  one  of  the  virtues 
of  the  Fowler  bill — that  is,  it  requires  the  banks  to  carry  a  gold 
reserve  ? 

Mr.  Gage.  Yes. 

Mr.  Gillespie.  But  the  bill  says  that  it  may  be  carried  in  gold  or 
its  equivalent. 

Mr.  Gage.  Yes. 

Mr.  Gillespie.  How  would  you  interpret  ''its  equivalent?" 

Mr.  Gage.  I  would  interpret  the  "equivalent"  at  the  present  as 
legal-tender  notes.  I  would  interpret  as  another  equivalent  silver 
certificates.  The  silver  certificate  we  have  with  us — and  we  can  not 
run  away  from  that — it  is  a  pity;  it  is  a  pity  because  when  the  coun- 
try is  strong  in  metallic  money  we  not  only  have  the  bulk  of  the  re- 
sources of  the  banks,  but  they  will  have  distributed  in  active  circula- 
tion through  the  people  a  considerable  volume  of  gold  or  other 
standard  money  which,  when  the  time  of  liquidation  comes  and  the 
outward  movement  sets  in,  may  to  a  degree  be  drawn  and  some 
substitute  made  in  place  thereof  to  tiie  great  benefit  of  the  country 
and  the  Government. 

Now,  six  hundred  millions  is  a  pretty  large  volume  when  it  is  in 
silver  certificates.  It  is  in  the  hands  of  the  people  largely,  and  as  long 
as  it  circulates  there  it  will  not  endanger  tiie  Government  guaranty 
for  a  parity.  You  have  got  to  have  a  guard  for  it,  and  so  far  the 
field  of  circulation  has  been  given  the  preference  to  silver  certificates 
in  the  case  of  one  and  two  and  possibly  five  dollar  notes,  so  that 
money  absolutely  in  men's  pockets  will  absorb  substantially  the  sil- 
ver certificates,  and  then  they  will  not  be  in  the  bank  reserves. 

Mr.  Gillespie.  Under  that  construction  of  those  wortls  it  would 
also  practically  cover  every  form  of  currency  that  we  have.  Our 
bank  notes  are  indirectly  convertible  into  gold.  We  can  take  them 
and  get  the  gold  on  them.  If  you  are  going  to  allow  the  banks  to 
keep  gold  or  its  equivalent,  and  if  you  interpret  the  present  kinds  of 
currency  in  existence  the  equivalent  of  the  goKl  dollar,  wmddn't  a 
bank  be  authorized  to  keep  any  of  the  present  form  of  currency  in  its 
reserve  as  well  as  gold? 

Mr.  Gage.  That  could  be  best  answered  by  the  language  of  the  bill 
itself. 

Mr.  Gillespie.  It  is  in  just  these  words,  "gold  or  its  equivalent." 
all  the  way  through. 

Mr.  Hayes.  Mr.  Gillespie's  point  is  that  l)ank  notes  secured  by 
bonds  as  at  present  rest  ultimately  upon  the  Treasury  of  the  United 
States  for  redemption. 


202  CURRENCY   LEGTSLATIOX. 

Mr.  Waldo.  Another  point:  This  bill  provides  that  this  board  of 
managers  in  the  respective  redemption  districts,  except  savings 
banks  and  trust  companies,  may  fix  the  rate  of  interest  that  these 
institutions  shall  charge  and  destro}'  competition  between  them. 
Now,  do  you  think  that  is  a  wise  provision,  just  that  feature — that 
this  board  should  have  the  right  to  fix  the  rate  of  interest  ? 

Mr.  Gage.  I  think  it  is  a  wise  provision  and  a  necessary  one;  yes. 

Mr.  Waldo.  It  would  destroy  competition  between  these  institu- 
tions. 

Mr.  Gage.  In  that  form,  yes. 

Mr.  Waldo.  That  would  leave  loans  to  be  placed  whether  they  were 
good  or  not,  instead  of  upon  how  much  bonus  or  interest  they  would 
pay? 

Mr.  Gage.  Yes. 

Mr.  Waldo.  It  would  be  an  element  to  do  away  with  bad  loans? 

Mr.  Gage.  I  think  so. 

The  Chairman.  There  is  one  more  question  that  I  would  like  to  ask, 
Mr.  Gage.  Do  you  think  that  this  guaranteeing  of  deposits  would 
lead  to  unsound  banking? 

Mr.  Gage.  No,  sir.  I  think  the  fact  that  under  your  bill  there 
would  be  a  penalty  for  neglect  of  inspection,  and  that  there  would  be 
the  machinery  for  inspection,  would  lead  to  sound  banking.  The  only 
restraint  upon  the  bank  officer  really  is  the  fear  of  loss,  not  to  his 
depositors,  but  to  his  stockholders.  That  fear  and  restraint  would  be 
as  operative  under  your  bill  as  it  is  now,  and  the  influence  of  the  inspec- 
tions and  the  restrictions  that  would  be  formulated  by  these  associates 
who  have  to  bear  part  of  the  risk  that  that  man  takes  if  he  goes  wrong 
is  a  pretty  good  insurance  that  he  will  go  right,  and  if  he  goes  right  he 
will  go  in  conformity  with  the  principles  of  good  banking  instead  of 
going  loose  like-  a  wild  horse  on  the  prairie. 

Mr.  Crawford.  What  do  you  say  produced  this  panic  ? 

Mr.  Gage.  It  would  take  about  five  minutes  to  tell  you  that. 

Mr.  Crawford.  Take  the  time. 

Mr.  Gage.  This,  I  think,  is  the  true  story  of  it.  I  spoke  a  little 
while  ago  about  the  ability  of  the  banks  with  the  present  system  of 
currency,  with  national  bank  notes  to  aid  them,  to  get  in  reserve 
money  and  expand  their  loans  and  discounts  on  that  basis.  This 
went  on,  and  the  loans  were  based  not  on  commercial  assets  nor  put 
out  in  the  interests  of  industry  or  commerce;  the}^  were  put  out  to 
carry  fixed  forms  of  securities  either  in  the  form  of  stocks  or  long- 
time bonds,  and  the  percentage  of  loans  on  these  kinds  of  securities 
last  named,  the  percentage  in  proportion,  has  constantly  grown.  I 
hope  some  of  the  gentlemen  who  succeed  me  will  give  the  figures. 
Now,  the  banks  in  New  York  and  the  great  centers  had  the  theory 
that  they  wore  the  best  securities  in  the  world  for  a  bank  to  loan 
upon. 

If  they  had  margin  enough  upon  these  securities,  it  did  not  make 
much  difierence  about  the  quality  of  the  borrower,  as  they  could  at 
any  time  take  those  securities  in  the  market  in  the  stock  exchange 
and  sell  them  and  realize  the  money  on  them.  They  forgot  that  the 
banks  had  all  the  money  all  the  time,  and  that  there  never  was  any 
stock  of  money  to  be  got  from  the  street;  they  forgot  that  when 
everybody  are  sellers  under  the  necessity  of  contraction  there  can 
be  no  buyers.     They  forgot  that  in  undertaking  to  realize  upon  this 


CURRENCY   LEGISLATION.  208 

class  of  securities  beyoiul  a  certain  point  they  W(juld  simply  ruin  the 
quality  of  the  collaterals  which  remained  behind  that  they  could  not 
market,  and  they  had  to  draw  a  line  where  they  had  to  stop  and  rest. 

That  was  the  situation  that  was  found  in  the  close  of  the  year  1907, 
viz,  extended  loans,  narrow  resources,  and  a  great  volume  of  long- 
time obligations,  which  ordinarily  would  be  taken  over  by  the  investor, 
who  is  the  man  that  ought  to  have  them,  for  he  is  the  man  who  has 
the  funds  to  invest  in  long-time  securities,  not  the  man  or  the  institu- 
tion that  owes  money  on  demand.  Anticipating  the  future  and 
encouraged  by  the  fluency  and  activity  of  things,  the  banks  took  on 
as  intermediaries  between  the  purchasers  of  these  securities,  the 
investors  in  these  securities,  an  enormous  quantity  of  these  stocks 
and  bonds,  which  they  held  in  the  faith  that  they  would  run  off  on  the 
other  side  into  the  investors'  hands,  and  the  value  would  be  recov- 
ered in  the  bank,  and  fresh  securities  of  a  similar  kind  taken  on. 

Now,  as  in  every  fall,  the  crop  movement  came,  the  best  we  ever 
had  in  many  respects,  and  the  banks  in  New  York,  as  my  friend  over 
here  said,  owed  between  three  and  four  hundred  millions  of  dollars 
to  the  interior  banks,  and  the  necessities  of  the  occasion  compelled 
the  banks  in  the  interior  to  make  their  natural  and  just  requests  upon 
the  central  banks  for  something  to  "move  the  crops."  Of  course,  in 
the  absence  of  any  currency  system  of  the  credit  kind  the  banks  had 
no  power  to  help  themselves  by  issuing  their  notes — I  mean  the  banks 
outlying  all  over  the  country — neither  had  the  New^  York  banks  any 
power  to  convert  their  obligations,  as  evidenced  by  their  books,  into 
note  obligations  which  they  might  send  out,  and  which,  if  used,  would 
answer  the  purpose  perfectly  well.  No;  they  were  obliged  to  take 
the  cash  reserve  money  on  which  the  local  credit  structure  four  times 
as  high  rested.  Every  dollar  pulled  from  the  reserve  to  furnish  this 
temporary  use  in  the  country  helped  to  pull  the  foundation  out  from 
under  the  structure. 

Now,  there  were  other  elements  of  destruction.  I  will  not  enumer- 
ate them.  There  had  been  many  loud  voices  of  denunciation  from 
many  quarters,  and  they  had  scared  the  investor,  lie  did  not  want 
to  buy  at  that  time,  and  the  banks,  moved  by  a  natural  instinct  to 
strengthen  their  position  for  the  outward  movement,  called  upon  their 
borrowers,  carrying  these  securities  for  payment,  and  these  borrowers 
tried  to  pay,  they  tried  to  pay  by  selling  their  securities,  but  the 
investor  was  not  there,  he  was  afraid.  Other  banks  were  not  in  any 
better  position  because  they  were  all  in  the  same  position,  substan- 
tially, in  relation  to  the  countr3\ 

The  downward  decline  of  these  securities  under  this  pressure  in 
the  stock  market  is  well  known.  The  banks  in  the  country  had  also 
learned  that  on  three  separate  occasions  their  balances  in  New  York 
had  suddenly  been  tied  up,  and  when  they  telegraphed  for  money 
that  was  due  them  they  got  wires  back  saying,  "We  are  not  sending 
currency."  They  had  been  embarrassed  and  choked  and  garroted 
on  three  or  four  occasions  in  previous  times.  They  learned  some- 
thing by  experience,  undoubtedly — human  nature  will. 

There  was  a  crisis,  and  the  banks  of  the  country  did  not  wish  to 
be  again  surprised,  and  they  telegraphed  to  the  New  York  banks 
for  money  that  they  did  not  need,  anticipating  if  they  did  not  get  it 
then  they  might  not  get  it  at  all:  that  aggravated  the  situation,  and 
the  next  time  it  will  be  worse  than  it  is  now.     Thev  have  learned 


204  CURRENCY   LEGISLATION. 

the  lesson  more  deeply  and  better.  Then  was  witnessed  also  the 
troubles  of  the  Knickerbocker  Trust  Company,  which  I  know  had 
been  looked  upon  with  distrust  by  the  city  financial  institutions  in 
New  York,  but  they  had  not  power  to  do  anything;  they  had  no 
personal  knowledge,  only  instinct,  but  with  a  certain  belief  in 
their  minds  that  if  a  crisis  ever  came  the  Knickerbocker  would  be  a 
complicating  factor  in  the  situation. 

I  w^as  told  two  years  ago  by  men  who  knew  in  a  general  way  about 
it,  but  they  had  no  power,  they  could  not  slander  their  neighbors, 
they  could  not  use  what  they  knew  intuitively,  with  no  evidence. 
The  Knickerbocker,  with  5  or  6  per  cent  of  resources,  waved  the  flag 
of  distress,  and  what  was  a  crisis  and  a  developing  crisis  scared  the 
savings  banks.  The  savings  banks  have  a  natiu'al  pride  in  meeting 
the  requests  of  what  they  call  their  customers  and  they  undoubtedly 
drew  large  amounts  of  money  which  tliey  usually  kept  on  deposit 
with  New  York  banks  into  their  own  coffers.  How  much  I  do  not 
know.  It  would  be  interesting  if  somebody  did  know.  That  and  the 
newspapers  and  the  action  of  the  banks  in  the  country  scared  the 
banks  and  put  them  to  considering  the  necessity  of  protecting  them- 
selves, as  they  had  before,  by  shutting  down  and  refusing  payment, 
and  that  was  a  panic.     Then  it  was  a  panic. 

Well,  what  did  they  accomplish  by  the  clearing-house  certificates? 
They  do  provide  means  for  liquidation  to  each  other,  and  thus  pass 
the  burdens  back  and  forth  according  to  their  respective  strength 
as  developed  in  the  clearing  house.  By  shutting  down  and  refusing 
to  pay,  but  compelling  liquidation  to  them  from  those  who  owed 
them,  merchants  and  manufacturers  against  whom  they  held  a 
claim,  they  strengthened  themselves,  canceled  the  clearing-house 
certificates  and  resumed.  I  think  that  is  a  fair  sketch  of  the  causes 
of  the  panic. 

Mr.  Waldo.  I  move  that  a  vote  of  thanks  by  the  committee  be 
tendered  Mr.  Gage. 

Motion  seconded  and  carried  unanimously  b}*  a  rising  vote. 

(Thereupon  the  committee  took  a  recess  until  2.30  o'clock  p.  m.) 


CO^IMITTEK    ON    HaNKING    AND   CURRENCY, 

Felrvary  19,  WOH. 
AFTERNOON    SESSION. 

The  coiiimittee  met,  pursuant  to  adjournment,  at  2.30  o'clock  p.  m., 
Hon.  Charles  N.  Fowler  (chairman)  in  the  chair. 

The  Chairman.  The  committee  will  please  come  to  order.  We 
have  Mr.  Conant  before  us  this  afternoon.  Mr.  Conant  desires,  as 
Mr.  Gage  did,  to  proceed  uninterruptedly  until  he  finishes  his  state- 
ment, at  which  time  he  would  be  \'ery  glad  to  have  anybody  ask  him 
questions  who  desires  to. 

STATEMENT  OF  MR.  CHARLES  A.  CONANT. 

Mr.  Conant.  Mr.  Chairnum  and  gentlemen  of  the  committee,  I 
desire  to  approach  the  problem  from  a  somewhat  difierent  side  from 
that  presented  so  luminously  and  eloquently  by  Mr.  Gage.  I  feel 
that  the  problem  is  something  more  than  a  currencv  problem.  I 
have  always  been  a  pronounced  advocate  of  a  change  in  our  bank- 
note system  which  would  give  it  greater  flexibility  and  greater  adap- 
tation to  business  conditions.  I  have  not  in  any  way  modified  my 
conviction  that  those  changes  are  essential,  and  those  changes  I  be- 
lieve this  bill  of  Mr.  Fowler's  accomplishes  in  a  satisfactory  way. 
But  beyond  that  there  are  certain  changes  in  our  banking  methocls 
Avhich  should  be  made  w^hich  are  difficult  to  attain  by  legislation, 
but  which  I  believe  this  bill  does  go  a  very  long  ways  toward  attain- 
ing. The  distinguished  author  of  the  bill  which  is  pending  in  another 
branch,  which  I  believe  it  is  not  permissible  to  name  here,  has  him- 
self outlined  some  of  these  requirements.  He  says  in  a  paragraph  of 
his  speech  purporting  to  have  been  made  in  this  other  body: 

A  general  demand  for  a  reform  in  banking  methods  is  quite  as  insistent  in  the  public 
mind  as  that  for  a  modification  of  our  monetary  system.  The  great  mass  of  the  men 
who  control  the  national  banks  of  the  country  are  strong  and  liberal  minded.  Their 
influence  and  that  of  the  institutions  they  represent  has  been  helpful  in  the  great 
work  of  national  development.  But  these  men,  intrusted  with  the  management 
of  great  financial  institutions,  which  can  do  so  much  to  make  or  to  mar  the  prosperity 
of  our  country,  should  realize  that  they  have  serious  responsibilities  with  reference 
to  existing  conditions  and  the  necessity  for  reform  in  Ijanking  metliods. 

In  another  place  he  says: 

We  should  constantly  bear  in  mind  the  danger  of  um-estricted  expansion.  It  leads 
to  inflation,  and  inflation  must  end  ultimately  in  disaster. 

And  still  again  he  says: 

There  is  another  disquieting  element  of  quite  as  serious  a  nature.  It  is  tlie  dis- 
covery that  many  national  banks  have  been  directly  or  indirectly  furnishing  capital 

!for  speculative  ventures.  Some  of  them  have  been  largely  engaged  in  promotmg  or 
underwriting  questionable  business  scliemes.  All  of  these  operations  are  clearly 
outside  of  the  .scope  of  legitimate  banking  and  serve  to  bring  discredit  upon  all  of 

iQur  banking  institutions. 

Now,  it  is  the  great  merit  of  the  bill  pending  here  that  it  does  auto- 
matically, us  it  were,  and  through  the  great  motive  of  self-interest 

205 


206  CURRENCY    LEGISLATION. 

operatino-  upon  the  minds  of  men  in  business  affairs,  correct  many  of 
these  evils,  or,  rather,  instead  of  correcting  them  after  they  have 
occurred,  anticipates  and  prevents  them  before  they  occur;  and  I 
regret  that  the  gentleman  who  made  these  remarks  did  not  incor- 
porate in  his  bill  some  provisions  which  would  tend  to  accomplish 
these  results.  The  evils  to  which  he  refers  are  not  limited  to  the 
national  banking  system.  On  the  contrary,  they  are  perhaps  more 
extensive  in  other  parts  of  the  banking  system  of  our  country,  if  it 
can  be  called  a  system;  or,  rather,  they  are  more  conspicuous  in  the 
polyglot  and  varied  systems  which  mark  the  banking  organizations 
of  the  different  States,  and  the  time  has  come,  I  think,  when  this  com- 
mittee and  Congress  should  take  cognizance  of  the  fact  that  the  bankr 
ing  system. of  the  Union  should  be  a  coherent  whole ;  that  it  is  not 
possible  to  shoulder  upon  the  national  banks  the'position  of  the 
reserve  banks  of  the  country  when  they  have  no  control — and  Federal 
law  exercises  no  control — over  a  multiplicity  of  other  institutions, 
the  burden  of  whose  responsibilities  falls  ultimately  upon  the  national 
banking  system.  Our  whole  system  as  at  present  organized,  or, 
rather,  as  at  present  existing — I  can  hardly  call  it  organized,  but  as 
at  present  constituted — is  incohereirt^_disiointed,  and  as  the  previous 
speaker  has  so  eloquently  said,  its  units  tend  to  become  repellent,  to 
become  hostile  one  to  another,  when  a  great  crisis  occurs;  and  it  is 
the  great  merit  of  this  bill  pending  before  you  that  it  meets  many  of 
these  difficulties  in  an  efficient,  scientific,  and  natural  manner. 

The  side  from  which  I  desire  to  approach  this  problem  is  the  side 
which  was  briefly  touched  upon  by  the  previous  speaker  in  answer 
to  a  question  as  to  what  were  the  causes  of  the  recent  crisis  and  panic. 
He  correctly  said  that  tlie  cause  lay  in  the  treniendous  expansion  of 
loans  upon  securities.  Loans  upon  securities,  in  my  opinionTwHen 
they  are  carried~beyond  a  reasonable  limit,  are  a  serious  source  of 
weakness  in  any  banking  system.  A  great  English  writer  on  bank- 
ing  said  that  it  was  easy  enough  to  conduct  the  business  of  banking 
if  you  could  distinguish  between  a  bill  of  exchMige  and  a  mortgage. 
Unfortunately,  in  our  recent  banking  we  Iiave  failed  to  make  that 
distinction,  and  we  have  failed  to  make  it  because  of  the  deceptive 
character  of  negotiable  securities.  The  national  banking  law,  I 
think,  specifically  prohibits  loans  upon  inortgages,  but  these  great 
loans  on  negotiable  securities  have  substantially  the  character  of  a 
mortgage.  At  first  sight  that  proposition  may  seem  diflRcult  to 
grasp,  but  if  you  think  for  a  moment  of  the  character  of  negotiable 
securities,  you  mil  see  that  it  is  sometimes  that  of  a  mortgage  and 
sometimes  much  worse  than  that  of  a  mortgage.  A  bond  is  in  a 
sense  a  mortgage;  in  fact,  it  is  usually  a  mortgage.  If  it  is  a  poor 
bond — a  bond  based  upon  collateral  of  doubtful  character,  or  based 
upon  any  miscellaneous  thing  that  you  can  never  lay  your  hand  upon 
in  case  of  default,  then  it  is  not  a  mortgage,  but  something  worse. 
The  reason  for  the  confusion  on  this  question  is  that  these  mortgages 
are  given  a  divisil)lo  and  circulating  form. 

The  difference  between  fixed  capital  and  circulating  capital  is  the 
essential  (fifference  between  mortgages  and  commercial  paper.  The 
distinction  is  confused  by  the  conversion  of  mortgages  into  divisible 
and  easily  transferable  parts;  but  tiiis  does  not  change  the  nature  of 
the  security.  Because  you  have  taken  a  mortgage  for  $100,000,000 
on  a  number  of  miles  of  trackage,  and  then  split  it  up  into  parts  and 


CURRENCY  LEGISLATION.  207 

thrown  those  parts  on  the  market  and  jnade  it  easy  to  transfer  them, 
it  does  not  change  the  fact  that  the  capital  apphed  to  such  an  invest- 
ment is  in  a  fixed  form;  that  the  capital  which  has  heen  put  into  that 
railway  property  is  invested  in  a  way  in  which  it  can  not  be  got  out; 
that  it  is,  in  other  words,  a  mortgage  and  nothyig  l)ut  a  mortgage; 
that  it  is  fixed  capital  and  not  circulating  capital.  And  it  is  circu- 
lating capital  which  it  is  the  legitimate  l)usiness  of  l)anks  of  discount 
to  deal  with,  which  is  the  legitimate  basis  upon  which  to  lend 
money  which  is  repayable  on  demand  to  depositors. 

To  illustrate,  it  is  the  capital  of  the  woolen  manufacturer,  who  buys 
his  wool  and  converts  it  into  cloth  and  sells  it  to  a  jobber  or  retailer, 
from  whom  it  goes  to  the  consumer,  and  when  the  process  is  com- 
pleted the  money  comes  back  through  its  various  channels,  the 
money  is  paid,  and  the  notes  are  all  taken  up  and  the  transaction  is 
closed.  If  the  demand  for  woolen  cloths  diminishes,  then  the  pro- 
duction of  wool  diminishes  and  the  production  of  cloth  diminishes 
and  the  number  of  bills  for  discount  based  upon  the  transactions  is 
diminished. 

Not  so  with  your  fragments  of  mortgages  which  are  called  bonds,  or 
your  fragments  of  something  else  which  are  called  stocks.  They  do 
not  diminish  in  quantity  naturally  in  time  of  crisis.  They  undergo 
no  automatic  diminution  except  under  the  pressure  of  a  financial 
crisis  producing  bankruptcy  and  liquidation.  Every  banker  in 
Europe  recognizes  that  distinction — that  the  legitimate  object  of 
loans  of  deposits  payable  on  demand  is  circulating  capital — the  proc- 
esses of  production  of  current  products  which  go  into  consumption. 
They  recognize  as  absolutely  unsound  loans  upon  mortgages  or  loans 
upon  those  divisible  parts  of  mortgages  which  we  call  bonds,  and  those 
remote  claims  upon  contingent  earnings  which  we  call  stocks. 

Now,  this  is  a  somewhat  abstruse  ])roblem  of  political  economy, 
and  it  is  difficult  to  make  it  perfecth'  clear,  always,  to  one  who  has  not 
followed  the  unfortunate  state  of  those  banking  institutions  which 
have  ventured  to  make  loans  upon  bonds  and  stocks  when  they  have 
held   themselves  ready  to   pay  their  depositors  on   demand.     The 

Eeople  who  can  legitimately  invest  in  those  securities  are  private 
ankers  who  hold  funds  placed  in  their  hands  for  such  investment, 
and  with  the  knowledge  of  the  depositor  that  those  funds  are  to  be  so 
invested.  The  banking  institutions  which,  like  the  Knickerbocker 
Trust  Company  and  some  other  companies  in  New  York,  have  chosen 
to  make  loans  on  securities  that  were  not  readily  marketable  under 
the  best  conditions,  are  criminally  negligent,  and  are  guilty  of  a  viola- 
tion of  sound  banking  principles.  And  as  the  previous  speaker  said, 
the  reform  of  the  currency  will  not  entirely  cure  that.  It  will  go 
some  ways  toward  it,  and  will  enable  the  bank  to  turn  the  corner  after 
the  liquidation  has  set  in,  and  to  avoid  the  shock  and  to  avoid  suspen- 
sion of  currency  payments,  a  suspension  that  for  a  nation  as  rich  and 
as  powerful  as  ours  is  more  disgraceful  than  is  the  suspension  in  some 
South  American  country  upon  the  brink  of  civil  war. 

For  the  banks  of  this  country  to  suspend  currency  payments  is  sub- 
stantially the  same  thing  as  the  banks  in  other  countries  have  done 
when  they  have  suspended  the  redemption  of  their  notes  in  specie. 
Wlien  currency  went  to  a  premium  of  3  j  and  4  per  cent,  as  the  previous 
speaker  well  said,  it  was  worse  than  the  condition  which  occurred  with 
the  Bank  of  France  in  the  period  of  her  acutest  agony.     The  suspen- 


208  CUBREXCY   LEGISLATION. 

sion  of  currency  payments  by  all  the  banks  of  the  United  States  is  a 
disgrace  to  our  credit  and  our  financial  honor,  which  never  could  occur 
under  a  sound  system.  It  is  not,  of  com-se,  the  fault  of  the  individual 
banker,  but  of  the  system,  and  we  are  here  asking  you  to  correct  that 
system  and  establish  a  system  which  will  save  this  great,  powerful 
country'  from  that  infamy  and  put  it  upon  a  plane  with  every  other 
great  civilized  state. 

But  I  do  not  want  to  wander  for  the  present  from  this  question  of 
negotiable  securities.  "Wonderful  as  has  been  the  benefit  of  this 
system  in  establishing  lindted  companies,  in  issuing  their  securities 
and  putting  them  upon  the  market,  of  drawing  into  the  market  the 
small  savings  of  the  people  of  the  country  in  those  investments,  the 
expansion  lias  been  so  rapid  that  it  has  outrun  the  experience  of  men 
in  dealing  with  it.  The  statistics  compiled  in  Europe  and  in  this 
coimtry  show  that  from  two  to  three  billions  of  dollars'  worth  of  new 
securities  have  been  offered  upon  the  market  annually  witliin  each  of 
the  past  few  years.  In  the  United  States  alone  I  found  by  recent 
inquirv  that  the  securities  wliich  I  coidd  ascertain  were  in  existence 
had  a  par  value  of  about  S34,000,000,000.  Think  of  it,  $34,000,000,000! 
Our  whole  national  wealth,  according  to  the  census  of  1904,  is  only 
$107,000,000,000.  Almost  one-tliird  of  that  is  in  negotiable  securi- 
ties. Of  course  reductions  should  be  made  for  securities  of  one  cor- 
poration held  by  another  corporation,  because  that  is  in  a  sense 
reduplication,  doubling  of  the  obligation  upon  the  same  property; 
but  even  making  those  deductions  so  far  as  the  data  at  my  command 
were  available,  amounting  to  about  S10,000,000,000r  we  still  had 
left  in  outstanding  securities  in  1905  about  .|24,400-,000,000 
worth  of  stocks  and  bonds  at  their  par  value,  and  their  par 
value,  it  so  happened,  at  that  time  did  not  differ  very  widely 
from  their  market  value  on  the  average.  Of  course  many  were  below 
par,  but  others  were  above  par,  so  that  the  average  market  value  did 
not  differ  widely  from  the  par  value  on  the  30th  of  June,  1905,  the 
date  fur  wliich  these  statistics  were  made  up.  I  hardly  need  to  say 
that  there  has  been  a  very  considerable  fall  since,  a  fall  computed 
by  one  of  the  New  York  journals  as  high  as  .15,000,000,000 — five 
thousand  millions — and  that  in  a  sense  is  the  price  we  pay  for  unsound 
banking  methods,  a  defective  currency  system.  That  terrific 
shrinkage  of  five  thousand  millions  of  dollars  came  on  those  securities 
because  we  had  loaned  too  much  on  this  class  of  securit}'  and  because 
we  had  no  adequate  currency  system  to  even  break  the  force  of  the 
descent. 

Now,  when  a  bank  ties  up  its  deposits  payable  on  demand  in  that 
form  of  security,  it  takes  a  very  large  risk.  Of  course  the  big  New 
York  trus-t  companies,  and  many  other  trust  companies  throughout 
the  country,  have  been  able  to  protect  themselves  against  that  risk, 
so  far  as  they  individually  were  concerned,  by  looking  ahead,  by 
anticipating  this  crash,  by  calling  upon  the  people  to  whom  they  had 
made  loans  either  to  increase  their  margins  or  to  increase  thier 
deposits  of  .'securities  or  to  withdraw  tlieir  securities.  All  through 
the  year  1907,  and  perhaps  for  some  montlis  before,  farsighted  bank- 
ers were  going  through  their  (u)llateral  and  weeding  out  imlustrisls 
and  other  securities  which  they  considei-ed  might  decline  sharply  in 
case  of  a  crash  in  the  market,  and  that  they  did  wisely  as  prudent 
bankers  was  shown  by  the  result.  The}'  did  the  only  thing  they  could 
do  for  the  protection  of  the  interests  of  their  depositors  and  share- 


CURRENCY   LEGISLATION. 


201i 


holders;  but  in  doino;  that  they  were  simply  protecting  themselves 
at  the  expense  of  others.  As  the  previous  speaker  so  well  |)ointed 
out,  when  the  time  came  that  these  calls  were  made  either  to  increase 
margins  or  to  increase  collateral — to  increase  securities  or  to  pay  up 
their  loans  and  withdraw  their  securities — the  means  were  not  found 
for  dcang  that  by  the  people  who  had  received  those  loans  except  by 
frightful  sacrifices  of  securities.  They  said,  "We  can  not  do  it,  we 
can  not  deposit  further  margins,  or  we  can  not  deposit  more  collateral, 
and  w^e  can  not  take  out  what  we  have,"  and  those  securities  were 
thrown  on  the  market  and  sold  for  what  they  would  bring.  The 
sacrifices  were  terrible,  and  that  is  what  brou";ht  on,  first  "the  silent 

f>anic"  of  March  14,  and  then  a  repetition  or  the  steady  downward 
all  of  those  scurities  in  August,  and  linally  the  confession  that  there 
were  a  few  banks  and  trust  companies,  even,  which  could  not  stand 
the  strain  which  had  been  imposed  with  such  severity  upon  their 
various  clients. 

The  fundamental  defect  in  those  loans  is,  as  I  have  already  inrli- 
cated.  that  they  are  mortgage^  and  not  circulating  capital.  Then 
there  is  the  further  fact,  in  addition  to  that,  that  these  State  institu- 
tions, trust  companies,  and  State  banks  are  under  no  control  what- 
ever of  the  Federal  law,  except  in  the  prohibition  to  issue  notes,  not 
even  to  keep  adequate  reserves.  I  want  here  to  put  into  the  record 
of  the  committee  some  statistics  bearing  upon  that  point,  and  I  will 
briefly  sum  up  a  few  of  them. 

Growth  in  State  banking,  1898-1907. 


Item. 

State  banks. 

Trust  companies. 

1898.                     1907. 

1898. 

1907. 

Number 

3,965  ;                   9,907 
$1, 356, 084, 800  i  ?4, 119, 190, 337 
912,365,406  '     3,068,649,860 
133,877,133           254,001,570 
76,064,610           192.737,361 
116,464,999           171,112,891 
131,685,788           489,504.637 
621,220,194       2,139,8.30,544 

246 

$942, 462, 179 

662,1.38,397 

22. 2.10, 862 

92, 175, 473 

303.790,563 

193,977,752 

143,196,409 

794 

Total  assets. . .                   

$;?,071.419.360 

Indivndual  deposits 

2,061.6*23, 035 

101,719,515 

Loans  on  real  estate 

174,2.35,578 

Loans  on  other  collateral  security 

823.109.861 
785.  fi99. 670 

604,018,708 

SUMMARY. 

Total  deposits: 

1898  $1,574,500,000 

1907 5, 130, 300,  000 


Increase. 3,  555,  800, 000 

Total  cash: 

1898                                         160, 000, 000 

1907 350, 000,  000 


196,  000,  000 


Increase 

Total  loans  not  commercial: 

1898  588, 500, 000 

1907 1, 361, 000,  000 


772, 500,  000 


Increase 

Total  bond  and  stock  investments: 

1898  ■ 325,  500, 000 

1907 1, 275, 500,  000 


950,  000,  000 


Increase 

Total  resources: 

National  banks  (May  20,  1907) $8,  476,  501, 434 

.A.11  other  banking  institutions  (June  30,  1907) 11, 168,  c»14,  oI6 


37881—08- 


-14* 


210  CURRENCY   LEGISLATION. 

These  statistics  not  only  show  a  reduction  of  the  reserves,  but  an 
amazing  expansion  of  this  form  of  banking  within  the  past  nine 
years.  I  took  the  figures  for  1S98  and  1907  for  State  banks  and 
trust  companies  as  reported  bv  the  Comptroller.  The  assets  of  the 
State  banks  expanded  from  S1^300,000,000  to  $4,000,000,000,  and  of 
the  trust  companies  from  $942,000,000  to  $3,000,000,000.  Now,  it  is 
obvious  that  that  expansion  of  liabilities  called  for  an  increase  of 
reserve  money,  a  strengthening  of  the  resources  of.  the  banks.  The 
total  deposits  of  both  State  banks  and  trust  companies  in  1898  were 
$1,500,000,000,  and  in  1907  $5,000,000,000,  or  an  increase  of  more 
than  three  and  a  half  billion  dollars.  The  total  cash  increased  from 
$160,000,000  in  1S9S  to  $356,000,000  in  1907.  In  other  words,  their 
cash  reserves  stood  after  the  increase  at  an  amount  sufficient  to  pay 
about  7  per  cent  of  their  deposit  liabilities.  No  wonder  the  Knicker- 
bocker Trust  Com})any  and  some  others,  even  if  they  had  the  average 
reserves  of  the  State  banks  and  trust  companies  of  the  country,  felt  it 
necessary  to  lean  upon  the  national  banks  in  the  reserve  centers  when 
there  was  a  run  upon  them  for  their  deposits. 

Now,  you  may  say,  ''To  be  sure,  their  reserves  were  somewhat 
limited,  but  perhaps  the}^  had  splendid  commercial  assets."  Not  so; 
at  least,  not  to  a  very  great  degree.  The  total  loans  not  commercial 
were  in  1898  $588,000,000,  and  in  1907  $1,361,000,000,  an  mcrease  of 
$772,000,000,  or  much  more  than  100  per  cent.  But  that  was  not 
all.  Their  total  bond  and  stock  investment  (which  we  are  asked  to 
increase  and  set  aside  and  hold  in  reserve  as  security  for  new  issues 
of  notes  in  a  bill  pending  in  another  chamber)  increased  from  $325,- 
000,000  in  1898  to  $1,275,000,000  in  1907,  an  increase  of  $950,000,000, 
or  very  nearly  300  per  cent. 

Now,  those  two  items  together,  total  loans  not  commercial  and 
total  bond  and  stock  investments,  made  up  more  than  $2,600,000,000 
of  the  assets  of  State  banks  and  trust  companies,  their  total  assets 
Deing  about  $7,000,000,000.  That  would  not  be  so  bad  in  itself  if  it 
nad  been  in  evenly  distributed  proportions,  but  in  the  trust  com- 
panies it  was  worse  than  in  the  f  ase  of  the  State  banks.  As  to  the 
loans  on  real  estate  and  other  collateral  security,  the  loans  on  real 
estate  of  course  were  small  and  on  other  collateral  securities,  stocks 
and  bonds,  those  held  by  State  banks  were  very  much  smaller  in  pro- 
portion than  in  the  case  of  trust  companies.  Now,  the  trust  com- 
panies had  been  going  on  doing  a  large  and  profitable  business  for 
many  3^ears,  and  manj"  of  their  officers  believed  that  the}^  could  lean 
absolutely  upon  the  national  system;  and  so  perhaps  they  could  if  the 
national  system  itself  were  sound.  But  the  national  banks  of  the 
country  to-day  have  been  compelled,  through  the  lack  of  any  co- 
herence, of  any  coordination  with  the  State  systems,  to  become  the 
reserve  center,  the  reserve  system  of  all  the  banking  institutions  of 
the  country;  and  inevitably  laws  which  were  perhaps  wisely  framed 
so  far  as  reserves  were  concerned  in  1864  have  proved  inadequate 
when  the  total  liablilty  imposed  upon  those  reserves  has  been  doubled 
without  essentially  increasing  the  reserves.  In  other  words,  the 
national  banks  of  the  country  as  a  whole  have  actually  now  an  ulti- 
mate reserve  liability  for  all  the  State  banks  and  trust  companies  of 
the  Union,  because  those  companies,  governed  by  the  varied  laws  of 
diflferent  States,  and  in  most  cases  by  very  loose  laws,  do  not  actually 
carry  reserves  which  are  in  an}^  way  adequate. 


CURRENCY   LEGISLATION.  211 

Now,  under  this  situation,  when  this  entire  pressure  was  focussed 
upon  the  httle  })and  of  national  reserve  banks  in  New  York  City,  is 
it  any  wonder  that  they  broke  down  under  the  burden  (  Is  it  any 
wonder  that  we  are  here  asking  modifications  of  our  banking  system 
which  shall  not  only  give  greater  flexibility  to  the  system  of  note 
issue,  wliich  is  a  great-  safeguard  and  resource  in  emergency,  but  are 
also  asking  the  adoption  of  the  comprehensive  features  of  Mr.  Fowler's 
bill,  wliich  will  coordinate  all  these  discordant  factors?  1  have  shown 
you  that  the  loans  were  not  made  altogether  upon  sound  ])rinciples. 
If  they  had  been  made  upon  sound  principles,  they  would  have  neen 
very  much  smaller  in  amount;  but  even  if  we  had  left  them  where 
they  stood,  if  we  had  admitted  their  propriety,  it  was  still  essential 
that  there  should  be  adequate  reserves  held  against  them  somewhere, 
and  under  the  national  banking  law  of  course  there  was  recognized 
only  the  obligation  of  the  national  banks  of  reserve  cities  to  national 
banks  of  the  smaller  reserve  cities  and  of  the  country  at  large.  Nowhere 
in  our  existing  legislation  and  our  existing  system  is  there  any  pro- 
vision for  providing  an  adequate  reserve  against  this  enormous  mass 
of  outside  liabilities,  in  itself  largely  rigid,  inflexible,  and  not  based 
upon  sound  banldng  principles;  and  Air.  Fowler's  bill,  j)roviding  for 
bringing  the  trust  companies  and  national  banks  into  the  national 
banking  system,  tends  to  give  that  coordination,  that  cohesion  and 
that  correlation  which  are  essential  if  we  are  to  become  a  solvent 
financial  nation.  And  his  other  provisions  wliich  introduce  mutuality 
among  the  banks,  by  imposing  the  burden  of  losses  upon  the  banks 
of  a  given  group,  and  authorizing  examinations  in  anticipation  of  bad 
loans  instead  of  after  they  are  made,  all  point  in  the  same  direction 
and  tend  to  a  cohesion  and  to  symmetry  and  unity  which  can  never  be 
found  under  our  existing  system,  even  with  adequate  modifications 
of  the  provisions  in  regard  to  the  issuance  of  notes. 

One  of  two  things  should  be  done — either  a  measure  like  this  should 
be  enacted,  or  a  much  larger  reserve  should  be  recjuired  from  the 
national  banks  of  the  central  reserve  cities,  in  view  of  this  great  con- 
tingent liability  of  State  banking  institutions.  Inevitably  the  only 
sound  measure  is  a  measure  which  shall  coordinate  the  entire  system, 
for  a  mere  addition  to  required  reserves  in  proportion  to  direct 
liabilities  might  be  insufiicient.  If  the  national  banking  system  of 
New  York  should  cease  to  grow  and  the  State  bank  and  trust  com- 
pany system  should  continue  to  grow,  then  a  few  per  cent  more  of 
national  bank  reserves  would  not  meet  the  extension  on  the  part  of 
the  trust  companies  and  State  banking  institutions,  nor  of  those 
same  institutions  scattered  over  the  Union  which  keep  their  reserves 
largely  on  deposit  in  New  York.  The  guaranty  for  deposits  tends, 
in  the  same  way  that  it  tends  to  prevent  the  panic  before  it  occurs,  to 
prevent  unnecessary  and  unwarranted  runs  on  the  banks  of  the 
country  as  a  whole,  and  to  remove  the  danger  from  the  local  banks, 
and  it  removes  the  motive  from  the  local  banks  for  appealing  to  the 
financial  center  at  New  York  for  excessive  and  unnecessary  accunuda- 
tions  of  money. 

Still  another  menace  is  involved  in  this  tremendous  expansion  of 
trust  company  and  State  banking  obligations  without  adequate 
reserves,  and  that  is  this,  that  in  those  reserves  are  counted  almost 
without  restriction,  indeed,  entirely  without  any  restriction  under 
State  law,  the  notes  of  national  banks;  and  you  all  know  that  those 


212  CURRENCy   LEGISLATION. 

notes  of  national  banks  as  they  are  issued  to-day  are  not  even  linked  to 
the  gold  movement  of  the  world,  that  they  are  issued  upon  fixed  securi- 
ties, just  the  form  of  loan  I  have  been  decrving.  Thev  have  expanded 
within  seven  years,  from  1900  to  1907,  by  $440,000,000.  Now  com- 
pare these  figures  with  the  increase  of  reserves  in  State  banks  and 
trust  companies.  The  increase  in  reserves  in  State  banks  and  trust 
companies  from  1898  to  1907  was  S196,000,000,  while  in  the  case  of 
bank  notes  the  increase  was  more  than  twice  that  sum,  Now, 
whether  actual  physical  bank  notes  were  put  into  those  reserves  or 
not,  the  fact  remains  that  bank  notes  were  issued  in  excess  of  this 
increase  of  reserves  and  took  the  place  of  so  much  legal  tender  money 
in  circulation  if  the  latter  was  held  in  reserve.  They  afforded  no 
adequate  reserve  for  the  tremendous  extension  of  trust  company 
and  State  banking  obligations,  and  in  fact  you  v>^ere  building  a  struc- 
ture of  paper,  one  story  upon  another,  not  even  the  narrow  founda- 
tion of  which  rested  upon  the  world's  money  of  exchange,  gold  coin. 
Perhaps  the  State  banks  and  trust  companies  are  to  be  congratulated 
upon  their  moderation,  that  instead  of  expanding  their  obligations 
by  only  five  l)illions  during  the  last  five  or  six  years,  they  did  not 
expand  them  by  ten  billions;  and  they  probably  would  have  done 
so  if  passably  good  securities  had  been  offered  as  collateral  for  the 
loans.     It  is  amazing,  it  is  impossible,  that  any  civilized  country  can 

fo  on  pyramiding  one  paper  obligation  upon  another  in  that  way. 
t  is  a  wonder  that  it  went  on  so  long. 

That  the  crash  was  not  worse  is  due  to  several  things.  First,  our 
Government  money  this  time  was  based  on  gold,  and  there  was  no 
question  but  that  any  Government  obligation  would  be  kept  equal 
to  gold.  The  second  thing  was  the  moderation  and  conservatism  of 
the  bankers  who,  even  though  they  did  not  all  understand  the  prin- 
ciples I  have  stated — the  limiting  of  commercial  loans  to  commercial 
paper — did  not  make  loans  on  very  doubtful  and  dubious  securities. 
But  so  far  as  their  power  was  concerned,  theoretically,  they  might 
have  gone  on  expanding,  issuing  stocks  and  bonds,  and  loaning  on 
stocks  and  bonds  deposited  as  collateral,  and  depositing  Government 
bonds  for  bank  notes  and  using  these  notes  as  legal  reserves  against 
their  expanded  loans.  Now,  we  have  pending  over  in  another 
Chamber,  a  measure  which,  if  it  were  not  for  its  tremendous  restric- 
tions, would  open  the  door  wider  still,  and  permit,  as  has  been  talked 
of  at  different  times,  two  billions  of  municipal  bonds  and  six  billions 
of  railroad  bonds  to  become  a  possible  basis  of  further  issues  of  so-, 
called  currency  having  no  relation  to  the  world's  great  movement  of 
gold.  Why,  if  it  were  not  for  the  6  per  cent  tax  proposed,  which 
practically  renders  the  measure  nugatory  and  prevents  the  issue  of 
the  notes  except  in  the  most  serious  emergency,  you  would  open  the 
door  for  a  very  saturnalia  of  paper  such  as  was  never  known.  To 
my  mind  the  ideal  currency  is  a  currency  of  bank  notes  redeemable 
in  gold,  through  certain  convenient  agencies,  and  every  nation  but 
ours  has  recognized  that.  There  is  no  nation  to-day  calling  itself 
civilized,  except  possibly  among  the  Latin-American  states,  which 
has  not  a  better  system  than  ours,  or  which  is  not  better  qualified 
and  prepared  for  the  emergoncy  of  war.  I  was  out  of  the  room  for 
a  few  moments  while  Mr.  Gage  was  speaking  of  that. 

The  Chairman.  Go  on  and  make  your  own  statement. 

Mr.  CoNANT.  I  do  not  know  whether  he  pointed  out  the  two  alter- 
natives that  would  confront  us  in  case  of  war.     The  two  alternatives 


CURRENCY   LEGISL.\riON.  213 

are  these:  Either  the  Government  would  be  compelled  to  sell  its 
bonds  at  a  reasonable  rate  of  return  which  would  make  them  accept- 
able in  the  market,  say  3  V  per  cent — they  could  probably  sell  3i  per 
cents  at  par —  either  they  would  be  compelled  to  do  that,  which  would 
depreciate  the  existing  2  per  cent  boncls  down  to,  we  will  say,  80  or 
probably  lower,  possibly  75;  or  they  would  be  compelled  to  issue  2 
per  cent  bonds  and  get  the  banks  to  take  them.  In  the  former  alter- 
native, the  issue  of  'Ah  per  cent  bonds  at  par,  which  would  force  a  de- 
cline of  the  old  2  per  cents  to  80  or  75,  wdiat  would  be  the  state  of  the 
bank  reports  made  to  theC\)mptr()ller  ?  The  institutions  holding  those 
bonds  would  have  to  write  off  on  the  old  bonds  25  to  30  per  cent  of 
their  capital  if  they  had  the  whole  of  their  capital  invested  in  bonds. 
FeW'  banks  could  stand  that.  Would  such  a  report  show  any  con- 
siderable surplus  or  any  undivided  profits  left  in  the  banks  as  a  whole? 
It  W'Ould  certainly  show  that  many  of  them  had  wiped  out  their 
surplus,  and  had  their  capital  impaired. 

Take  the  other  alternative,  that  the  Government  -said,  "We  have 
sold  $700,000,000  of  2  percents  in  the  past.  Now  we  w411  put  out  a 
billion  more  twos."  Evidently  that  billion  of  twos  as  the  basis  of  a 
billion  dollars  of  bank  notes  would  cause  suspension  of  gold  payments 
and  drive  out  approximately  a  billion  dollars  of  gold  and  we  should 
be  floundering  in  a  mire  of  paper  worse  than  that  in  which  we  flound- 
ered during  the  civil  war.  I  can  see  no  escape  from  that  conclusion 
if  we  continue  the  bond  basis  and  extend  it  still  further.  I  consider 
any  bill  that  enables  the  further  extension  of  the  bond  sj^stem  as 
bad  as  any  measure  that  w^as  ever  proposed  by  a  South  American 
dictator.  It  is  perfectly  suicidal  to  propose  further  extension  of 
circulation  based  on  bonds.  You  have  either  got  to  tie  up  the  cir- 
culation so  that  it  will  be  futile  and  not  be  asked  for  or  cut  your 
circulation  off  absolutely  from  the  anchorage  of  the  gold  standard. 
I  know  that  some  of  my  statements  may  seem  extreme  and  perhaps 
theoretical;  and  yet  we  have  got  to  look  at  the  problem  in  its  broader 
aspects  to-day;  w^e  have  got  to  look  at  tendencies;  we  can  not  wisely 
adopt  something  we  know"  is  dangerous,  because  we  have  tried  to 
draw  the  fangs  by  making  it  inoperative.  What  is  the  use  of  pass- 
ing something  that  is  based  on  an  unsound  principle  and  then  trying 
to  make  it  sound  by  making  it  impossible'^ 

Now^,  there  are  several  possible  remedies  for  the  evils  we  have  de- 
fined. Of  course  a  central  bank  woidd  correct  some  of  the  evils 
under  which  w^e  have  been  operating.  Its  great  merit  would  be  that 
it  w^ould  control  the  financial  situation  in  New  York  in  a  way  in  wliich 
it  can  not  be  controlled  now  until  we  are  in  full  crisis.  When  we  have 
a  crisis  now^,  wdien  tw^o  or  three  big  trust  companies  are  suspending, 
the  clearing-house  committee  gets  together  and  says,  "Now  we  will 
do  something;  we  will  issue  clearing-house  certificates  and  save  the 
situation."  A  central  })ank  saves  the  situation  in  atlvance.  I  shall 
point  out  that  the  bill  here  pending  paves  the  way  for  a  central  bank 
and  makes  its  operation  more  steady  and  effective  when  wo  ol)tain  it. 
But  the  great  merit  of  a  central  bank  is  that  it  can  control  the  (liscount 
rate,  as  is  not  done  under  the  present  law.  Theoretically  it  is  con- 
ceivable that  the  presidents  of  the  big  banks,  or  that  the  clearing- 
house committee,  could  get  together  and  say,  "Gold  is  going  out  and 
speculation  is  excessive;  we  will  raise  the  discount  rate  from  4  per 
cent  to  5  per  cent,  and  we  will  raise  the  rate  for  call  money."  But 
evervone  familiar  with  banking  in  New  Yt)rk  knows  that  this  does  nOt 


214  CURRENCY   LEGISLATION. 

happen.  Each  bank  acts  for  itself.  There  are  some  banks  that 
would  like  to  act  in  that  way.  But  if  you  had  a  central  bank,  with 
several  officials  of  the  Government  sitting  on  its  board — not  to  control 
it  sordinary  commercial  operations  but  to  see  that  it  keeps  within 
sound  banking  principles — you  would  see  that,  as  in  the  case  of  the 
Bank  of  France  or  the  Bank  of  Germany  or  the  Bank  of  England,  the 
discoimt  rate  would  be  advanced  whenever  there  was  any  indication 
that  speculation  needed  to  be  checked  or  that  the  outflow  of  gold 
should  be  stopped  or  that  gold  should  be  drawn  into  this  country. 
That  is  the  great  merit  of  the  central  bank,  that  it  stands  at  the  center 
of  affairs,  a  sheet  anchor,  a  Gibraltar,  ready  to  discount  the  paper  of 
other  institutions  if  it  is  sound,  but  ready  to  give  them  an  admonitory 
word  to  reduce  their  operations  if  they  are  unsound. 

But  even  a  central  bank,  as  I  said  of  our  big  reserve  banks  in  New 
York,  would  operate  under  difficulties  if  this  whole  system  of  State 
banks  and  other  institutions  were  imposing  all  its  burdens  upon  the 
bank  without  its  power  to  intervene  until  the  instant  of  the  crisis.  If 
these  various  institutions  can  be  coordinated  by  offering  privileges 
to  induce  them  to  come  into  the  national  system,  if  they  can  be 
offered  privileges  which  will  be  valuable  to  them,  you  can  super- 
impose your  central  banking  structure  upon  this  well  coordinated 
system  of  national  banking,  and  it  will  be  able  to  act  with  greater 
efficiency  than  it  could  without  it. 

Upon  the  question  of  reserves,  there  should  undoubtedly  be  some 
changes  of  law.  But  what  is  the  use,  as  I  said  before,  to  change  your 
law  and  require  larger  reserves  in  some  institutions,  if  you  can  not 
require  them  in  all,  when  all  institutions  lean  ultimately  upon  the 
great  reserve  banks  of  New  York,  and  those  banks  under  the  existing 
system  are  not  even  coordinated  into  a  harmonious  and  self-aiding 
body?  They  stand  alone  until  the  crisis  is  upon  them,  and  then 
under  the  imminence  of  absolute  ruin  they  sometimes  get  together 
and  save  the  situation  for  themselves,  as  they  did  recently,  by  sending 
currency  to  a  premium.  Reserves  should  be  undoubtedly  increased 
in  some  proportion,  but  that  is  not  the  whole  solution  of  the  question. 
Personally,  I  do  not  believe  in  going  so  far  as  to  prohibit  the  carrying 
of  some  reserves  in  New  York,  because  New  York  is  the  financial 
center  of  the  country,  and  inevitably  every  bank  of  any  standing 
has  a  deposit  there,  and  that  deposit  should  be,  under  any  decent 
and  sane  banking  system,  as  good  as  gold.  The  great  Euro})ean 
banks  carry  in  their  reserves  great  amounts  in  foreign  bills.  The 
Bank  of  Germany  usually  has  in  its  reserve  a  great  amount  in  bills 
on  England,  ])rincipally  on  London,  because  it  is  known  that  a  bill 
on  London  is  convertible  anywhere  and  is  worth  its  par  value  in  gold. 
So  ought  bills  on  New  York  to  be,  if  her  ambition  is  to  be  one  of  the 
great  financial  centers  of  the  world.  She  never  can  be  so  long  as  we 
nave  such  a  monetary  system  as  we  have  at  ])resent.  For  a  city 
whose  l)anks  snsjx'iid  currency  payments,  which  sees  gold  and  currency 
go  to  a  j)r('iiiinin  of  4  per  cent  in  case  of  an  emergency,  and  that 
j)remium  ofi'crcMl  for  the  importation  of  foreign  gold,  is  as  well  qualified 
to  contend  for  the  supremacy  of  the  world  in  financial  matters  as 
Rio  de  Janeiro  or  Valparaiso.  Such  an  ambition  is  grotesque  under 
such  a  system  as  ours. 

Bank  issues  secured  by  bonds  are  only  a  stimulus  to  inflation.  It 
does  not  matter  how  good  the  bonds  are.     Bonds  are  a  part  of  a 


CURRENCY  LEGISIATION.  215 

mortgage.  A  man  can  loan  money  on  a  mortgage  and  lie  knows  that 
he  can  eventually  get  his  money  back.  But  what  (le])ositors  in  banks 
want  is  to  get  their  money  l)ack,  not  eventually,  l)ut  "sooner." 
When  they  put  deposits  in  a  bank,  what  they  have  a  right  to  depend 
on  and  what  they  want  is  the  certainty  of  being  able  to  withdraw 
those  deposits  again  on  demand.  The  fact  that  the  bank  has  got  a 
lot  of  good  bonds  which  it  can  liquidate  some  time,  or  has  got  a  lot  of 
good  mortgages  on  its  hands — ^l)onds  running  until  1959  or  1970, 
perhaps — is  of  no  consequence  to  those  depositors.  ^Miat  they  want 
is  assets  that  can  be  converted  into  cash;  and  commercial  paper,  of 
course,  constitutes  such  a  resource.  Some  of  it  is  coming  due  each 
day.  And  if  you  had  your  central  bank,  you  would  have  paper  com- 
ing due  not  only  at  the  fixed  date  from  when  it  was  drawn,  but  j^ou 
would  have  the  rediscounted  paper  coming  due  very  soon  after  it  was 
rediscounted.  That  is  the  policy  of  the  Bank  of  France  and  of  the 
other  continental  banks.  If  the  joint-stock  banks  find  that  they 
need  a  little  currency  or  are  hard  pressed  for  reserves,  they  go  up  to 
the  Bank  of  France  and  rediscount  the  ])aper  they  have  in  hand,  and 
that  paper  may  have  already  run  seventy-five  days  out  of  the  ninety 
which  it  has  to  run,  so  that  the  Bank  of  France  alwaj^s  has  in  its 
custody  paper  maturing  almost  at  once.  Its  note  issue,  moreover,  is 
backed  by  a  gold  reserve  of  five  hundred  millions — nearly  as  large  as 
our  Treasury  gold  resources — so  that  you  have  in  the  central  bank  a 
sheet  anchor;  a  safeguard  against  every  possible  or  conceivable 
emergenc}^.  With  their  use  of  those  powers,  their  power  of  discount 
of  paper  brought  in  b}"  the  joint-stock  banks,  without  limit  upon  the 
note  issues  of  the  bank,  and  without  definite  reserve  requirements, 
because  that  is  left  to  the  foresight  of  the  bankers  at  its  head,  and 
with  this  immense  gold  stock  they  have  a  system  which  is  impreg- 
nable, which  nothing  could  shake  except  economic  collapse  of  the 
entire  industrial  power  of  the  nation. 

Now,  we  have  in  the  Treasury  gold  to  the  amount  of  $9()0,()()0.()0{), 
but  it  is  wasted,  it  is  useless,  to  a  large  extent.  It  is  circulating 
among  the  public  in  the  form  of  gold  certificates.  It  is  very  good 
money,  but  there  is  no  doubt  that  the  public  would  be  just  as  well 
satisfied  with  bank  notes  resting  upon  an  adequate  reserve.  They 
would  not  be  as  well  satisfied  with  greenbacks,  if  they  understand 
the  question,  resting  upon  a  gold  reserve,  because  the  Government 
is  not  a  bank;  it  lias  no  quick  assets.  That  is  the  fundamental 
weakness  of  all  this  talk  about  the  Government  doing  a  banking 
business.  How  can  it  do  such  a  business^  To  be  sure,  we  j)iled  up 
some  gold  there;  we  provided  that  in  case  of  emergency  the  (iovern- 
ment  shall  keep  solvent  by  paying  out  this  stock  of  idle  gold.  I^ut 
the  Governiiieiit  has  not  any  commercial  paper  coming  tlue;  it  lias 
not  any  mortgages  of  railroads  antl  steel  corporations  or  even  United 
States  Mercantile  Marine  to  sell  or  hypothecate  on  the  market;  it 
has  notliing  but  its  current  receipts,  and  its  current  expenditures 
absorb  these  current  receipts.  There  have  been  times  when  we  have 
had  a  surplus  when  we  needed  it,  and  tiiat  surplus  has  been  availed 
of  to  help  the  ])anks  and  avert  trouble.  But  the  real  function  of  a 
bank  is  to  meet  the  public  tleinaiids  for  cnuht  throut^h  its  circulating 
medium  and  deposits — through  a  circulating  medium  secured  by 
gold  and  also  by  commercial  paper  rediscounted  at  that  central 
institution  or  these  coordinate  institutions  of  which  1  have  spoken. 


216  CURKENCY    LEGISLATION. 

It  is  amazing  that  we  approach  this  problem  so  slowly,  so  labori- 
ously, with  such  travail.  Every  other  country  in  the  world,  practi- 
cally, has  approached  a  central  bank  through  a  system  of  coordination 
and"  gradual  elimination  of  local  bank  note  issues.  France,  as  you 
know,  founded  the  Bank  of  France  in  the  time  of  the  great  Napoleon. 
She  had  for  a  time  some  departmental  banks,  but  the  power  of  issue 
was  taken  from  them  and  concentrated  in  the  central  bank,  which  now 
has  its  branches  in  the  larger  cities  of  France.  Austria-Hungary  has 
her  central  bank.  And  while  we  are  comparing  our  nation  with  others 
what  shall  we  say  of  Russia  and  Japan  in  their  late  war?  Did  either 
one  of  them  find  it  necessary  to  suspend  specie  payments?  Did  the 
Bank  of  Russia  announce  that  owing  to  the  great  pressure  in  the 
money  market  and  the  fall  of  Russian  securities  on  the  Paris  Bourse 
they  would  suspend  gold  payments?  They  would  probably  have 
had  to  do  it  if  the  Bank  of  Russia  had  been  secured  by  the  bonds  of 
Russia;  but  they  were  secured  on  the  commercial  resources  of  the 
country,  and  they  were  as  good  as  gold.  Even  little,  struggling,  new- 
born Japan  tried  early  in  her  history  to  base  her  circulation  on  bonds, 
and  national  banks  sprung  up  like  flowers  under  the  breath  of  spring 
all  over  that  land.  They  were  all  over  Japan,  and  they  put  out  their 
notes,  great  cjuantities  of  them.  But  the  country  was  soon  flooded 
with  paper,  gold  left  the  country,  and  within  a  few  years  the  Govern- 
ment brought  in  a  proposition  for  creating  the  present  National  Bank 
of  Japan  and  taking  the  power  of  issue  gradually  away  from  the  local 
banks.  Under  this  system  of  a  central  bank  even  under  the  strain  of 
poverty,  with  poorly  developed  industrial  equipment,  facing  one  of 
the  greatest  powers  of  Europe  in  a  contest  that  tested  her  to  the 
uttermost,  the  Bank  of  Japan  went  on  steadil}^  maintaining  specie 
payments.  When  it  was  found  that  there  was  some  tendency  to 
trouble,  they  simply  floated  a  proper  loan  and  strengthened  their 
reserves,  and  kept  on  maintaining  specie  payments  without  even 
such  a  provisional  suspension  of  payment  as  the  Bank  of  France 
exercised  in  1870.  Could  we  do  that?  It  is  difiicult  to  see  how  we 
could,  mucii  as  I  am  interested  in  the  maintenance  of  the  honor  and 
sovereignty  of  my  own  ccuntry. 

Summing  up  these  coT/clusions,  I  say  that  the  provisions  of  the  bill 
before  you  not  only  provide  for  a  better  bank-note  system,  in  itself 
of  vital  importance,  and  which  I  consider  of  the  very  first  importance, 
but  it  goes  beyond  that.  It  goes  to  the  root  of  the  great  evils  which 
were  developed  in  our  recent  crisis,  which  were  the  culmination  of  a 
bad  system  blindly  carried  on,  for  I  do  not  suppose  that  until  the 
report  of  the  Comptroller  of  the  Currency  was  printed  after  the  panic, 
anybody  knew  what  this  tremendous  expansion  of  State  and  trust 
com|)aiiy  banking  resting  upon  liie  fragile  reserves  of  the  New  York 
banks  was.  But  we  know  it  now.  We  know  what  a  lofty  supcr- 
strnclnre  of  crecHt  was  built  upon  that  foundation,  and  we  have  a 
bill  here  which  makes  it  almost  impossible  hereafter  that  tliose  oper- 
ations shall  go  on  wit  hont  being  coordinated  with  the  national  banking 
system,  and  if  I  had  any  amendment  to  suggest  to  this  bill  it  would 
be  thi.s—  that  tliere  should  be  some  safeguard  against  excessive  loans 
of  deposits  which  are  payable  on  demand  upon  negotiable  securities; 
that  either  the  percentage  shoidd  be  restricted  of  a  bank's  assets  that 
could  be  thus  loaned,  or  that  the  valuation  of  securities  should  be 
bo  based  n|)(>ii  the  average  valuation  of  a  period  of  time  instead  of 


CURRENCY  LEGISLATION.  217 

upon  the  market  valuation  of  the  moment;  because  it  is  the  market 
vakiation  of  the  moment  which  has  caused  this  tremendous  pyra- 
michng  and  specuhition  in  New  York. 

Speci  Lation,  in  mv  judgment,  is  a  legitimate  function;  but  it  can 
be  made  illegitimate  by  being  carried  on  wrongfi  lly  and  without 
justification  m  existing  conditions.  What  happened  in  New  York 
under  the  system  of  pyramiding  loans  upon  securities  witho  't  ade- 
quate reserves  was  something  like  this,  that  a  man  having  1,000 
snares  of  a  stock  worth  50  co  Id  go  to  a  bank  and  borrow  $37,500, 
and  he  co-  Id  then  take  that  $37,500  and  divide  that  up  between  two 
or  three  brokers  and  by  means  of  what  is  known  as  "wash  sales" 
manage  to  convince  the  public  that  the  stock  w^as  going  to  rise  and 
that  it  was  a  good  thing  to  buy.  When  he  had  worked  it  I'p  to  75, 
he  would  borrow  three-fourths  of  75,  or  aroi  nd  56,  instead  of  the  37^ 
he  had  before.  When  he  had  worked  it  up  to  150  he  co  Id  then 
borrow  112^,  where  he  had  originally  borrowed  only  37i.  There 
are  seci.rities  on  the  New  York  market  which  have  made  almost 
those  tremendous  strides,  and  whose  market  value  is  made  up 
partly  of  real  value  and  partly  through  this  indefinite  pyramiding 
of  loans.  You  could  stop  it,  or  at  least  check  it  if  you  would  simply 
say  that  the  value  of  the  loans  made  shall  be  75  per  cent  of  the 
market  value  upon  the  average  of  the  pre^io"  s  three  months,  in- 
stead of  75  per  cent  of  the  market  value  of  yesterday,  which  per- 
haps was  20  points  above  the  market  value  of  the  day  before  and  50 
points  above  the  value  of  the  week  before.  I  use  these  figures 
because  there  is  a  provision  in  the  law  of  New  York  that  a  banking 
institution  can  loan  upon  securities  only  75  per  cent  of  their  market 
val^  es.  I  do  not  recall  that  the  national  banking  law  makes  any 
prohibition  to  the  effect  that  you  can  not  loan  100  or  150  per  cent, 
and  I  think  some  s;  ch  provision  as  I  have  suggested  would  tend 
to  check  spec;  lation  and  keep  it  within  its  legitimate  channels — 
for  it  has  legitimate  channels — and  to  prevent  that  speci  lation 
which  is  pure  inflation,  which  robs  the  people  by  misleading  them, 
by  misrepresenting  the  value  of  securities.  You  wo: Id  then  pre- 
vent the  growth  of  this  mi  shroom  structure  which  inevitably  col- 
lapses, throwing  the  whole  burden  upon  the  unrelated  and  isolated 
banking  units  of  New  York. 

This  bill  takes  a  long,  firm  stride  in  the  riglit  direction.  It  coor- 
dinates the  banks  with  each  other.  It  would  tend  to  prevent  unwar- 
ranted and  speculative  loans,  and  bring  into  the  national  system 
the  State  banks  and  trust  companies  which  have  been  able  to  carr}^ 
on  these  speculations  witlu)ut  restrictions  as  to  reserves,  or  at  least 
with  very  inadequate  restrictions.  I  think  that  is  all  I  have  to  say 
now.     I  would  be  glad  to  answer  any  questions  you  want  to  ask. 

The  Chairman.  Do  any  gentlemen  of  the  committee  desire  to  ask 
questions? 

Mr.  BiTRTON.  You  would  fix,  would  you,  a  nuixinuun  of  the  anuiunt 
that  can  be  loaned  upon  the  Government  securities? 

Mr.  CoNANT.  A  percentage. 

Mr.  Burton.  A  maximum  percentage? 

Mr.  CoNAXT.  Yes;  I  think  the  national  banks  of  New  York  have 
ranged  up  to  60  per  cent  of  their  loans,  but  their  percentage  has  not 
been  anj'thing  like  that  of  the  trust  companies.  The  trust  com- 
panies, in  fact,  are  more  or  less  restrained  by  law  from  lending  on 


218  CURRENCY   LEGISLATION. 

commercial  paper,  because  their  original  purpose  was  not  to  accept 
deposits  payable  on  demand.  I  would  like  to  put  in  the  record  a 
letter  on  this  subject  which  I  wrote  to  the  Evening  Post  at  the  very 
first  outbreak  of  the  panic. 

The  Chairman.  Very  well. 

The  letter  submitted  by  Mr.  Conant  was  as  follows: 

[The  Evening  Post,  New  York,  Frida}-,  October  25,  1907.] 
BASIS    OF    SOUND    BANKING. 

To  the  Editor  of  the  Evening  Post. 

Sir:  Present  conditions  in  the  financial  world  throw  light  on  the  declaration  of  a 
well-known  English  authority  that  "nothing  was  easier  to  conduct  than  the  business 
of  a  banker,  if  he  would  only  learn  the  difference  between  a  mortgage  and  a  bill  of 
exchange."  The  phrase  "bill  of  exchange,"  as  here  used,  refers  more  particularly  to 
domestic  l)ills,  and  is  equivalent  to  our  term  commercial  paper. 

It  is  the  failure  to  distinguish  between  a  mortgage  and  a  bill  of  exchange  which  is 
causing  many  of  our  present  difficulties.  The  piling  up  of  loans  upon  p^Tamids  of 
inflated  stocks  and  bonds  is  due  in  large  degree  to  the  great  development  of  industrial 
securities  in  recent  years.  Such  securities  do  not  represent  circulating  capital,  but 
fixed  capital.  They  are  simply  obligations,  or  shares,  in  a  mill,  a  railway,  or  mine 
which  represent  a  permanent  investment.  They  are  either  mortgages  or  something 
which  ranks  below  mortgages.  Securities  circulate,  but  the  property  they  represent 
is  fixed.  They  are  not,  therefore,  in  any  proper  economic  sense  circulating  capital, 
and  are  not  the  best  basis  for  the  investment  of  deposits  payable  on  demand. 

The  true  basis  of  sound  banking  is  commercial  paper,  because  such  paper  repre- 
sents circulating  capital.  In  other  words,  it  is  the  product  of  purchases  of  raw 
materials  which  are  converted  within  a  short  time  into  finished  products,  whose  sale 
for  consimiption  affords  the  means  to  pay  off  the  paper  and  thereby  closes  the  transac- 
tion. When  money  is  borrowed  on  securities  no  transaction  of  this  character  takes 
place,  and  there  is  no  natural  and  normal  date  for  closing  the  transaction.  Managers 
of  banks  and  trust  companies  seek  to  give  the  character  of  circulating  capital  to  secur- 
ities by  advancing  money  on  them  subject  to  repayment  at  call.  This  system  works 
admirably  in  periods  of  prosperity,  but  it  causes  couAoilsion  in  times  of  adversity. 
The  owner  of  a  part  of  a  mill,  railroad,  or  mine  can  not  convert  the  property  into  cir- 
culating capital.  In  his  efforts  to  get  rid  of  his  share  of  it,  when  he  finds  that  all  the 
banks  are  curtailing  their  loans,  he  is  compelled  to  make  great  sacrifices  or  shoulder 
the  losses  upon  the  banks  by  failing  to  make  good  his  margins.  Undoubtedly,  in 
most  cases  the  banks  are  foresighted  enough  to  protect  themselves  by  throwing  the 
burden  upon  the  borrower,  with  the  result  of  continuous  crashes  in  the  stock  market 
until  stocks  fall  far  below  their  normal  value. 

Nothing  of  this  kind  occurs  in  dealing  with  commercial  paper.  There  is,  of  course, 
some  field  for  speculation  in  commercial  operations,  but  it  is  limited.  The  losses  on 
commercial  paper  are  calculable,  like  insurance  losses,  and  are  a  fraction  of  1  per  cent 
per  annum.  When  the  merchant  finds  demand  diminishing  he  diminishes  his  pur- 
chases of  raw  materials  and  his  creation  of  finished  products,  thus  automatically  reduc- 
ing his  demand  upon  the  banks.  He  is  not  tied  up  with  a  fixed  volume  of  paper 
running  continuously,  as  are  the  owners  of  stocks  and  bonds.  The  result  is  that  he 
meets  his  obligations  as  tliey  mature,  and  if  the  bank  can  not  continue  his  accom- 
modation he  curtails  his  output.  Never  does  commercial  paper  fluctuate  from  par  down 
to  40  or  50,  like  even  good  securities,  save  in  the  exceptional  case  of  the  insolvency  of 
the  maker,  and  even  then  there  are  usually  indorsements  to  which  to  have  recourse. 

Loans  on  securities  are  legitimate  within  certain  limits,  but  within  the  last  decade 
or  two  they  have  come  to  constitute  altogether  too  large  a  i^ercentage  of  the  loans  made 
from  depositors'  money.  On  the  part  of  the  New  York  national  banks  alone  loans  on 
collateral  increased  from  §1G2„SG1,654  on  October  G,  1896,  to  .f442,210,7G5  on  Septem- 
ber 4,  1906,  while  connnercial  loans  increased  only  from  $151,795,029  to  $259,840,272. 
Where  stocks  and  bonds  are  not  the  very  best  and  most  convertible  stock  exchange 
securities,  loans  upon  them  are  only  disguised  participations  in  permanent  enterprises. 
Such  participations,  in  one  form  or  another,  nearly  wrecked  the  ( Jerman  banks  in  1901 
and  have  proved  a  source  of  di.saster  on  many  other  occasions.  It  is  to  be  hoped  that 
after  the  present  situation  has  cleared  up,  our  bankers  will  return  to  the  sound  princi- 
ple of  the  Eiigli.sh  writer  <iuot(;d  at  the  beginning,  that  they  should  deal  in  commercial 
paper  representing  circulating  capital  instead  of  dealing  in  the  rei)re.sentatives  of  fixed 
capital,  and  try  to  shoulder  the  lo.ss  on  borrowers  by  looking  farther  ahead  than  they. 

Charles  A.  Conant. 

New  York,  October  24. 


CURRENCY   LEGISLATION.  219 

Mr.  Burton.  Will  not  the  result  of  that  be  the  transfer  of  that 
business  from  national  banks  to  trust  companies'? 

Mr.  CoNANT.  If  that  were  an  isolated  provision,  but  not  under 
this  bill,  which  coordinates  the  whole  system  of  State  banking  insti- 
tutions with  the  national  system. 

Mr.  Burton.  That  is,  you  want  it  applicable  to  all  loans  by  all 
banks? 

Mr.  CoNANT.  There  is  a  constitutional  c^uestion  there,  of  course, 
whether  Congress  could  regulate  State  institutions. 

Mr.  Burton.  Your  idea  is  that  this  brings  in  the  trust  companies 
with  the  national  banks,  so  that  they  all  come  under  national  super- 
vision ? 

Mr.  Conant.  Yes;  that  is  the  idea. 

Mr.  Gillespie.  Do  you  think  that  State  banks  and  trust  companies 
will  come  under  this  bill? 

Mr.  Conant.  I  think  that  is  the  tendency  and  purpose.  It  may 
require  some  additional  provisions  to  force  their  lianas.  Of  course 
it  is  not  competent  for  Congress  to  take  away  any  privilege  now  be- 
longing to  national  banks  under  their  twenty-year  charters,  with 
respect  to  note  issue  or  anything  else ;  but  it  is  competent  for  Congress 
to  offer  such  inducements  to  come  into  the  new  plan  that  it  will  be 
to  their  advantage  to  do  it,  and  the  same  is  true  of  trust  companies 
and  State  banks. 

Mr.  Waldo.  Do  you  believe  it  would  be  for  their  interest  to  come 
in  under  the  new  law? 

Mr.  Conant.  Oh,  yes. 

Mr.  Hayes.  Do  you  think  it  would  be  competent  for  Congress  to 

gut  a  tax  on  the  commercial  deposits  of  trust  companies  and  savings 
anks,  and  so  forth? 

Mr.  Conant.  It  probably  could  be  done,  but  I  think  less  violent 
measures  would  accomplish  what  is  desired.  The  thing  that  is  going 
to  accomplish  it  eventually,  if  not  immediately,  is  the  guaranty  of 
deposits,  because  the  State  institutions  must  compete  with  the 
national  banks  with  the  average  depositor  when  the  one  is  guaranteed 
and  the  other  is  not. 

Mr.  Hayes.  But  before  that,  could  we  not  possibly  put  a  tax  on 
deposits  payable  on  demand  in  trust  companies,  which  I  think  you 
would  agree  was  very  unsafe  banking. 

Mr.  Conant.  It  could  be  done,  but  I  prefer  to  do  it  by  less  violent 
means. 

Mr.  Gillespie.  Do  you  believe  in  the  principle  of  guaranteeing 
deposits  ? 

Mr.  Conant.  Yes;  correlated  with  these  other  measures.  I  do 
not  know  that  I  would  advocate  it  as  a  sej^arate  pro]K)sition. 

Mr.  Pujo.  What  effect  would  the  enactment  of  the  Fowler  bill 
into  law  have  upon  State  banks,  savings  banks,  and  trust  c-onijninies, 
with  reference  to  their  continuing  in  business? 

Mr.  Conant.  I  think  most  of  them  would  organize  as  national 
banks. 

Mr.  Pujo.  It  would  drive  them  all  out,  would  it  not? 

Mr.  Conant.  To  a  large  extent.     A  few  of  them  might  survive. 

Mr.  Burton.  Do  you  think  it  desirable  to  merge  all  these  dilTerent 
functions  performed  by  the  different  banks? 


220  CUKRENCY   LEGISLATION. 

Mr.  CoNANT.  So  far  as  the  trust  companies  are  concerned,  I  think 
it  is  possible.  I  doubt  the  wisdom  of  bringing  in  the  savings  institu- 
tions. 

The  Chairman.  Can  you  do  that  with  the  banking  going  on  in  the 
country  as  it  is  to-day?  They  are  all  doing  a  savings  business  now, 
are  they  not  ? 

Mr.  Waldo.  Is  it  not  true  that  there  is  no  savings-bank  business 
outside  of  New  England  and  New  York;  that  is,  all  the  real  mutual 
savings-bank  business  that  there  is  in  the  country  is  there? 

Mr.  Cox  ANT.  Yes;  that  would  be  so.  Of  course  there  is  the  sav- 
ings-bank business  that  is  done  for  profit.  The  mutual  institutions 
of  New  York  and  New  England  are  very  admirable  institutions. 

Jklr.  Waldo.  Yes;  but  they  are  the  only  ones,  are  they  not?  The 
savings-bank  business  outside  of  New  York  and  New  England  is 
purely  conducted  for  profit,  is  it  not? 

Mr.  Hayes.  What  would  be  the  objection  to  organizing  savings 
banks  under  a  national  law  to  fill  that  want  ? 

!Mr.  CoNANT.  I  do  not  know  whether  that  would  be  within  the 
constitutional  power  of  Congress  or  not;  for  the  national  banking 
law,  for  its  constitutionality,  rests  upon  the  fact  that  the  Govern- 
ment controls  the  circulation.  Of  course  no  circulation  is  issued  by 
savings  banks. 

Mr.  Hayes.  No. 

Mr.  Powers.  As  I  understand,  you  would  rely  upon  the  guaranty 
of  deposits  to  convert  trust  companies  into  national  banks,  and  it 
would  have  a  tendency  to  force  them  to  become  national  banks? 

Mr.  CoNANT.  To  a  large  degree;  yes. 

Mr.  Powers.  And  that  is  one  of  the  reasons? 

Mr.  CoNANT.  That  is  one  of  the  reasons. 

Mr.  Powers.  What  is  to  prevent  the  trust  companies  of  New  York 
State  or  any  other  State  from  arranging  for  a  guaranty  of  their 
deposits,  if  they  find  that  is  necessary  ? 

Mr.  CoNANT.  You  mean  through  a  State  law  or  voluntarily? 

Mr.  Powers.  Yes. 

Mr.  CoNANT.  That  is  conceivable,  but  it  is  doubtful,  for  several 
reasons.  The  banks  of  Oklahoma  have  their  deposits  guaranteed  by 
the  State;  but  if  you  ask  existing  banks  to  go  into  a  voluntary  guar-, 
anty  of  deposits,  the  bigger  ones  might  not  care  to  go  into  it. 

Mr.  Powers.  Is  there  any  good  reason  why  the  trust  companies 
would  not  be  as  willing  to  go  into  it  under  the  Fowler  bill  as  the 
large  banks  would  be  to  go  into  it? 

Mr.  CoNANT.  Under  the  Fowler  bill  ? 

Mr.  Powers.  If  it  was  necessary  to  their  being  successful  and  to 
prevent  their  being  transformed  into  national  banks? 

Mr.  CoNANT.  It  is  conceivable  that  that  coidd  be  done,  theoretic- 
ally; but  practically  I  think  you  would  find  they  would  be  less  willing 
to  do  it.  Because  here  we  have  this  great  fund  set  aside  which 
guarantees  them  against  loss,  and  you  could  not  well  constitute  such 
a  fimd  out  of  the  funds  of  the  trust  companies  of  a  single  State.  Of 
course,  this  ])roposal  to  guarantee  deposits  is  j^ractically  an  insurance 
proposal. 

Air.  Powers.  You  say  you  could  not  coMstitute  sucli  a  fund  out  of 
the  funds  of  tlie  trust  com})anies.     Are  not  the  de})osits  in  the  trust 


CURRENCY  LEGISLuVi'ION.  221 

companies  and  the  State  banks  in  excess  of  those  in  the  national 
banks  to-day? 

Mr.  CoNANT.  Yes;  they  are  shghtly  in  excess;  but  they  are  not 
actino;  under  a  common  national  law. 

Mr.  Powers.  Woidd  not  that  ^ive  them  the  power  to  create  an 
equally  laro;e  fund  ? 

Mr.  CoNANT.  Yes,  if  you  make  them  put  in  any  funds.  But  the 
difficulty  is,  of  course,  that  we  want  to  coordinate  them  with  the 
national  system.  Even  if  you  have  your  trust  companies  in  one  or 
•two  States  do  it,  you  do  not  obviate  the  evil,  but  all  the  burden  of  the 
trust  companies  of  other  States  would  fall  upon  the  banks  of  New 
York.  . 

Mr.  Powers.  I  am  in  hearty  accord  witli  most  of  the  provisions 
of  the  Fowler  bill,  but  I  liave  not  quite  got  up  to  this  guarantee  of 
deposits. 

Mr.  CoNANT.  Upon  the  nuitter  of  the  guarantee  of  deposits  I  was 
at  first  somewhat  skeptical  upon  the  groimd  tliat  has  been  stated 
sometimes,  that  it  would  encourage  unsound  banking;  but  I  do  not 
believe  that  that  would  occur  in  this  case,  because  the  banks  would 
have  so  much  more  to  contend  for.  You  can  not  say  that  two 
woolen  manufacturers  are  going  to  be  encouraged  in  producing  bad 
goods  because  they  are  both  insured.  You  can  not  say  that  of  any 
industry.  In  other  words,  by  eliminating  tlie  loss  of  the  depositors, 
you  do  not  ehminate  the  loss  to  tlie  stockholder  or  the  personal  loss 
of  the  bank  officer;  you  do  not  ehminate  competition  between  two 
office  buildings  by  insuring  both  of  them. 

Mr.  Powers.  This  is  a  kind  of  mutual  insurance? 

Mr.  CoNANT.  All  insurance  is  mutual,  to  an  extent. 

Mr.  BuRTOX.  Would  tliis  insurance  of  deposits  prevent  panics? 
Does  not  the  depositor  expect  ultimate  payment  and  also  imme- 
diate payment  whenever  he  desires  it?  Suppose  there  was  a  time 
of  great  stress,  and  suppose  he  knew  that  whatever  he  deposited 
with  the  bank  would  be  idtimately  paid  to  him,  would  he  not,  how- 
ever, withhold  his  money  in  many  instances  because  he  would  fear 
that  there  would  be  delay  in  receiving  it? 

Mr.  CoNANT.  No.  While  I  think  the  detail  is  not  fully  worked  out 
here,  my  supposition  would  be  that  in  case  a  bank  failed,  having 
this  fmid  of  $700,000,000  to  guarantee  the  deposits,  the  law  should 
provide  that  the  depositors  should  be  paid  at  once  from  the  fund  and 
that  the  fund  sliould  afterwards  recover  from  the  assets  of  the  bank. 

Mr.  Burton.  Could  you  provide  the  machinery  for  that  immediate 
payment  ? 

Mr.  CoNANT.  Yes;  they  do  it  in  Canada  on  notes,  or  practically 
that.  They  have  a  provision  there  that  the  notes  shall  bear  interest 
until  paid.  We  might  provide  that  the  deposits  should  bear  interest 
until  })aid,  and  then  you  could  take  them  to  any  bank  and  get  the 
money. 

,     Mr.  Burton.  But  su]ipose  the  banks  were  all  scant  in  their  supph^ 
of  cash? 

Mr.  CoNANT.  They  will  not  be  scant  in  their  su])ply  of  cash  if  we 
have  a  proper  system  of  note  issue.  I  am  not  in  favor  of  the  insur- 
ance of  de])osits  as  an  isolated  proposition,  but  as  a  ])art  of  this  sys- 
tem. Whether  it  is  necessarily  a  good  thing  as  an  isolated  proposition 
is  another  matter.     In  Canada  when  a  bank  fails  and  a  man  has  a 


222  cuERENcy  legislation. 

note,  that  note  bears  6  per  cent  interest  from  the  date  of  the  faihire 
until  it  is  paid,  and  you  can  go  into  any  bank  and  change  it.  You 
can  apply  the  same  system  to  your  deposits. 

Mr.  Burton.  It  would  require  a  certain  amount  of  bookkeeping, 
would  it  not?  There  might  be  a  dispute  between  the  depositor  and 
the  bank  as  to  how  much  he  had  there,  and  the  balance  would  have 
to  be  ascertained.  Would  there  not  be  a  certain  amount  of  delay 
in  securing  his  deposit  under  any  system  of  guaranty? 

Mr.  CoxANT.  Of  course  those  disputes  arise  to-day  between  the 
depositor  and  the  bank,  but  except  in  extraordinary  cases  the  bank's 
version  is  accepted.     I  do  not  see  that  that  would  offer  any  difficulty. 

Mr.  Weeks.  Do  you  think  that  the  currency  system  of  this  country 
had  anything  to  do  with  the  collapse  last  fall? 

Mr.  CoNANT.  Oh,  yes. 

Mr.  Weeks.  I  mean  the  collapse  that  took  place  before  the  panic; 
I  am  not  talking  about  the  panic. 

Mr.  CoNANT.  If  you  ask  if  it  was  the  sole  cause,  I  would  say  no;  but 
if  you  say  a  cause,  I  would  say  yes. 

Mr.  Weeks.  What  effect  did  it  have  on  the  collapse  in  October? 

Mr.  CoNANT.  It  made  currency  so  scarce  that  the  banks  were  com- 
pelled to  husband  their  reserve  money.  While  it  had  all  to  do  with 
the  suspension  of  currency  payments,  it  did  not  have  all  to  do  with  the 
liquidation  on  the  stock  exchange. 

Mr.  Weeks.  The  panic  was  on  then. 

Mr.  CoNANT.  But  it  did  have  all  to  do  with  the  suspending  of  specie 
payments.  In  the  first  place,  the  fear  would  not  have  arisen,  with  a 
rational  currency  system,  that  the  currency  would  be  deficient. 
There  would  not  have  been  calls  made  by  the  country  banks  upon  New 
York  if  they  had  known  that  all  the  notes  they  wanted  could  be  had, 
both  their  own  notes  and  the  borrowed  notes  of  New  Y'ork.  That  not 
being  the  case,  they  called  upon  New  Y'ork  for  large  sums  of  money 
which  had  to  be  paid  in  reserve  money,  the  banks  having  no  authority 
to  issue  any  other. 

Mr.  Weeks.  Was  not  the  collapse  really  due  to  our  banking  meth- 
ods rather  than  to  the  currency  system? 

Mr.  CoNANT.  The  suspension  of  payments  was  not. 

Mr.  Weeks.  A  large  amount  of  deposits  are  sent  to  New  York,  and 
the  New  York  banks  holding  the  reserves  have  to  do  something  with 
them  because  they  are  paying  2  per  cent  interest  on  them,  and  they 
loan  those  reserves  on  what  they  can  realize  on  when  they  need  it,  and 
that  is  stock-exchange  collateral.  Now,  you  have  talked  a  good  deal 
about  collaterals;  did  you  ever  know  a  bank  to  lose  a  cent  on  a  loan 
made  on  New  York  stock  exchange  collateral? 

Mr.  CoNANT,  It  has  been  claimed  that  up  to  this  panic  there  never 
has  been  such  a  loss. 

Mr.  Weeks.  Do  you  know  of  one  in  this  case? 

Mr.  CoNANT.  I  (io  not  know  positively  as  to  the  Knickerbocker 
Trust  Company,  whether  some  of  their  loans  were  on  stock-exchange 
collateral.  But  that  is  not  my  point.  My  point  is  not  that  the  trust 
companies  could  not  protect  themselves,  but  that  the  whole  system 
was  unsoimd  economically,  and  the  trust  companies  protected  them- 
selves at  the  expense  of  their  clients. 

Mr.  Weeks.  The  banks  can  not  do  anything  else.  They  receive 
this  large  amoimt  of  money  and  they  are  paying  2  per  cent  interest  on 


CURRENCY   LEGISLATION.  223 

it,  and  they  loan  it  on  something  that  they  can  reahze  on  immediately, 
and  that  somethint^  is  stock-exchanp;o  collateral,  and  when  they  want 
to  realize  the}^  have  to  call  those  loans,  and  that  is  what  brings  on  tliis 
collapse. 

Mr.  Hayes.  That  is  what  brought  it  on  last  time. 

Mr.  CoxANT.  You  asked  me  a  question.  The  causes  you  have 
stated  had  a  great  deal  to  do  with  the  liquidation,  but  the  panic  and 
the  suspension  of  currency  payments  could  have  been  avoided  by  a 
proper  currency  system.  There  was  no  need  for  suspending  currency 
payment  while  you  had  a  sound  currency  system,  even  though  the 
banks  had  overloaned. 

Mr.  Weeks.  I  will  admit  tliat,  absolutely. 

The  Chairman.  Is  it  not  a  fact  that  our  bond-secured  currency 
which  has  entered  so  largely,  to  the  extent  of  two  or  three  himdred 
million  dollars,  into  oirr  reserves,  was  the  cause  above  all  other  causes 
that  led  to  the  inflation  of  the  last  year? 

Mr.  CoNANT.  One  of  the  causes,  because  the  bank  circidation 
expanded  four  or  five  hundred  milHons  without  correlative  increase  of 
reserves. 

Mr.  Waldo.  Referring  again  to  Mr.  Weeks's  question  as  to  whether 
the  fact  of  the  loans  on  Wall  street  was  not  the  cause  of  the  trouble 
here,  is  it  not  a  fact  that  if  we  had  had  a  credit  currency  sich  as  is 
provided  by  the  Fowler  bill,  or  some  other  of  that  kind,  that  emer- 
gency world  have  been  met  by  the  issuance  of  credit  notes  by  the 
New  York  banks,  and  the  collapse  tided  over? 

Mr.  CoNANT.  Yes;  you  would  not  have  stopped  the  liquidation, 
but  you  woidd  have  made  it  less  sudden  and  acute.  The  great  merit 
of  this  system  proposed  by  Mr.  Fowler,  and  of  all  sound  credit  cur- 
rency systems,  is  that  you  keep  yoi  r  notes  tied  to  gold.  You  require 
a  gold  reserve. 

Mr.  Weeks.  Do  you  think  there  w'oi;ld  be  any  advantage  if  the 
country  banks  were  reqrired  to  keep  a  larger  percentage  of  their 
reserves  in  their  own  vau  Its  ? 

Mr.  CoNANT.  Yes;  a  larger  percentage.  I  would  not  require  them 
to  keep  all,  becai^se  New  York  is  the  financial  center  of  the  country, 
and  every  bank  in  the  coi  ntry  mist  keep  some  of  its  money  there,  and 
it  is  quite  proper;  but  whether  the  percentage  could  be  reduced  or  not 
is  another  matter.  I  think  it  could  be  reduced.  The  percentage 
allowed  to  be  held  in  New  York  could  be  reduced. 

Mr.  Weeks.  Assuming  that  the  bill  known  as  the  Aldrich  bill  can 
be  passed,  and  no  other  can  be  passed,  do  you  think  it  would  be  to 
the  advantage  of  the  coi  ntry  and  of  the  currency  system  of  the  coun- 
try to  pass  that,  or  to  do  nothing? 

^Ir.  CoNANT.  Is  there  any  provision  in  the  Aldrich  bill  changing 
the  reserve? 

Mr.  W^eeks.  No. 

Mr.  CoNANT.  I  should  prefer  that  it  should  not  pass.  I  do  not 
regard  it  as  desirable  in  any  way,  and  I  do  not  consider  it  at  all  nec- 
essarv. 

Mr.  McCreary.  Coming  back  to  the  8700,000,000  of  bonds  and  :Mr. 
Fowler's  plan  of  having  them  called  in  and  the  banks  remunerated 
for  them,  what  do  you  think  of  that  question? 

Mr.  CoNANT.  I  do  not  know  that  I  caught  your  question. 

Mr.  McCreary.  We  have  a  bond-secured  circulation  at  present, 
and  in  order  to  save  the  banks  from  loss  it  is  pro^nded  that  these 


224  CURRENCY    LEGISLATION. 

bonds  shall  ultimately  be  taken  over  by  the  Government  and  paid 
for  by  the  Government,  the  banks  being  paid  the  money  for  the 
bonds  that  they  put  out. 

The  Chairman.  Yes. 

Mr.  McCreary.  I  wanted  to  ask  you  how  that  would  work  out. 

Mr.  CoNANT.  I  do  not  see  any  objection  to  it.  Have  you  any 
definite  objection  in  your  mind? 

The  Chairman.  It  is  simply  a  question  of  taking  5  per  cent  of  the 
reserves  now  required  and  transferring  them  to  the  Government  and 
taking  the  bonds  right  ofY  their  hands  at  the  price  thej^  gave  for 
them.     You  carry  12§  per  cent  in  New  York,  do  you  not? 

Mr.  McCreary.  Yes. 

The  Chairman.  You  would  transfer  5  per  cent  of  that  12^  per  cent 
to  the  Treasury  in  Washington.  When  it  is  in  the  Treasury  in  Wash- 
ington it  would  then  be  used  to  purchase  these  bonds.  Now,  it  is  5 
per  cent  of  that  deposit  equivalent  to  your  circulation. 

Mr.  CoNANT.  Practically  you  should  remit  bonds  as  part  of  your  5 
per  cent,  only  there  are  reasons  why  it  is  better  to  do  it  in  this  round- 
about way  which  you  provide. 

The  Chairman.  It  is  5  per  cent  of  your  deposits. 

Mr.  McCreary.  We  have  a  million  of  circulation. 

The  Chairman.  Then  it  would  be  the  contribution  of  other  banks 
that  would  help  you  out  with  yours.  And  it  is  the  5  per  cent  of  your 
required  reserves  through  the  country  that  is  transferred  to  Washing- 
ton, so  that  the  banks  do  not  put  up  an  additional  cent,  but  simply 
transfer  a  part  of  the  reserves  now  required  for  any  reserve  city  to 
Washington,  and  there  the  bonds  are  purchased. 

Mr.  Hayes.  The  bonds  are  held  as  security. 

Mr.  Waldo.  The  bonds  take  the  place  of  it. 

Mr.  CoNANT.  Practically,  as  I  understand  it,  it  amounts  to  a  trans- 
fer of  the  bonds  by  the  banks  to  the  guaranty  fund,  but  owing  to  the 
different  ratio  in  wliich  the  bonds  are  held  by  different  banks  it  is 
better  to  do  it  in  the  way  the  chairman  provides. 

Mr.  Glass.  You  think  that  the  passage  of  the  Aldrich  bill  would  be 
detrimental  to  the  country  in  that  it  would  postpone  the  enactment  of 
a  sound  banking  and  currency  law? 

Mr.  CoNANT.  It  would  have  that  tendency.  I  hope  it  would  not. 
It  might  be  used  as  an  argument  for  postponing  it. 

Mr.  Waldo.  In  your  opinion  if  the  Aldrich, bill  should  now  be 
passed,  would  not  that  probably  end  any  chance  of  a  proper  revision 
of  our  financial  and  currency  laws  until  the  next  panic  occurred? 

Mr.  CoNANT.  I  do  not  know  that  I  would  care  to  express  a  positive 
opinion  on  that.     It  would  have  that  tendency. 

Mr.  Waldo.  That  is  what  I  mean;  it  would  have  that  tendency? 

Mr.  CoNANT.  It  would  have  that  tendency,  but  it  would  not  deter 
me  and  other  people  interested  from  going  on  and  urging  further 
reforms. 

Mr.  Waldo.  But  would  it  not  have  tliat  tendency,  to  prevent  any- 
thing being  done  until  wc  w^ere  in  the  next  tr()u])le? 

Mr.  CoNANT.   You  know  more  about  it  tluiii  I  do. 

Mr.  Waldo.  What  would  be  the  efl'ect  of  the  provision  for  clearing- 
house certificates  in  the  Aldrich  bill? 

Mr.  Conant.  I  do  not  see  that  it  would  do  any  good.  You  can  not 
avail  yourself  of  it  except  at  a  heavy  cost. 


CUREENCY  LEGISLATION.  225 

Mr.  Weeks.  When  you  are  approaching  a  panic  you  do  not  figure 
on  cost,  do  you,  when  you  arc  in  need  of  money '( 

Mr.  CoNANT.  That  depends.  There  is  not  much  advantage  to  the 
bank,  as  I  understand  it,  in  getting  this  currency  at  the  cost  involved, 
and  if  the  banks  suspend  currency  payments  of  course  they  do  not 
need  that  currency.  It  is  a  matter  which  I  have  not  been  able  to 
decide,  whether  if  a  crisis  did  occur  the  banks  would  avail  themselves 
of  the  Aldrich  bill  or  would  continue  to  issue  clearing-house  certifi- 
cates. I  think  clearing-house  certificates  would  be  cheaper.  But 
what  I  want  is  some  measure  which  will  anticipate  a  crisis  and  not 
something  to  pull  us  off  the  rocks  when  we  are  beating  to  pieces 
upon  them. 

Mr.  Weeks.  The  clearing-house  certificates  do  not  go  into  the 
hands  of  the  public. 

Mr.  CoNANT.  I  know,  but  they  release  a  certain  amount  of  money 
which  can  be  put  into  the  hands  of  the  public. 

Mr.  Hayes.  You  make  a  distinction  between  the  certificate  and 
the  check,  do  you? 

^Ir.  Weeks.  Yes. 

(It  was  moved  and  seconded  that  the  thanks  of  the  committee  be 
extended  to  JVIr.  Conant  for  his  very  able  and  interesting  exposition 
of  this  subject.  The  motion  was  agreed  to  by  a  unanimous  rising 
vote.) 

;J7381— 08 15* 


Committee  on  Banking  and  Currency, 

House  of  Representatives, 

Wednesday,  February  19,  1908. 

STATEMENT  OF   MR.  JOSEPH   FRENCH  JOHNSON,  DEAN  OF   THE 
NEW  YORK  UNIVERSITY,  SCHOOL  OF  COMMERCE. 

Mr.  Johnson.  I  am  a  teacher  and  not  a  practical  man,  and  I  come 
before  you  on  short  notice,  without  having  had  time  to  make  special 
preparation.  I  understand  you  have  been  studying  the  subject  for 
several  weeks,  and  I  wash  to  congratulate  you  on  the  evident  posses- 
sion of  sanity  wliich  I  see  in  your  eyes,  for  I  have  long  had  a  pretty  firm 
conviction  that  a  man  could  not  continuously  study  the  currency 
question  for  more  than  one  week  without  going  crazy. 

When  I  undertake  to  bring  before  m}^  students  this  problem  wliich 
you  are  wrestling  with — and  I  think  it  is  the  most  important  problem 
before  the  country,  and  that  this  committee  has  on  its  shoulders  the 
biggest  responsibility  of  any  body  of  men  meeting  anywhere  in  the 
United  States  at  the  present  time — I  start  out  bycalling  their  attention 
to  the  fact  that  there  are  two  media  of  exchange,  money  and  credit, 
credit  being  a  promise  to  paj^  money.  Then  I  show  them  that  as 
business  has  developed  in  the  United  States  there  are  two  classes  of 
credit,  namely,  the  credit  wliich  every  fellow  will  take  because  the  man 
or  the  institution  that  makes  the  promise  is  so  good  that  nobody 
questions  the  promise,  and  credit  of  limited  acceptability,  the 
maker  of  the  promise  being  not  very  widely  known,  so  that  the  credit 
is  not  taken  by  everybody.  Those  forms  of  credit  which  everybody 
is  willing  to  take  people  commonly  call  money,  and  it  is  with  credit  of 
this  kind  that  tliis  committee  is  specially  concerned.  We  have  a  lot 
of  it  in  our  currency  system  issued  b}^  the  Government — United  States 
notes.  Treasury  notes,  and  silver  dollars  (which  are  simply  promis- 
sory notes  of  the  Government  stamped  on  silver  instead  of  on  paper) . 
The  promise,  of  course,  is  not  on  the  silver  explicit}",  but  it  is  written 
in  the  law  and  is  possibly  implied  in  the  words  "  In  God  we  trust." 

Mr.  Pujo.  That  is  not  on  the  money  any  more  now — "In  God  we 
trust." 

Mr.  Gage.  For  50  cents. 

Mr.  Johnson.  Yes;  for  50  cents.  Bank  notes,  which  are  the 
promises  of  banks,  are  also  commonly  called  money.  Then  I  pro- 
ceed to  show  my  students  that  the  problem  runs  a  little  deeper  than 
that.  What  sort  of  credit  money  shall  we  have,  bank  notes  or  Gov- 
ernment notes?  The  advantage  of  credit  over  money  is  that  the 
money  supply  is  fixed,  wliile  the  credit  supply  is  unlimited;  that  is 
to  say,  each  business  transaction  may  create  the  credit  instrument 
that  consummates  or  mediates  it.  That  is  the  advantage  that  credit 
has,  as  a  medium  of  exchange,  over  money;  and  bank  notes,  when 
properly  issued,  possess  the  same  advantage  over  Government  notes, 

226 


CUKRENCY  LEGISLATION.  227 

for  the  sup})ly  of  the  latter  can  not  be  changed  to  suit  the  fluctuating 
needs  of  business. 

There  is  a  still  deeper  problem  here  which  has  been  touched  upon 
by  both  speakers  who  have  preceded  me.  It  is  a  financial  problem. 
It  is  a  question  of  fuiance  rather  than  of  currency.  Not  only  is  money 
a  medium  of  exchange,  just  as  credit  is,  but  it  also  serves  as  that 
wherein  the  wealth  and  value  of  the  country  are  stored.  Wealth  is 
the  ])roduct  of  our  labor,  our  machines,  raw  material,  mines,  and 
natural  resources.  These  are  merged  into  one  homogeneous  thing, 
money,  which  finds  its  way  into  the  banks,  to  be  loaned,  and  no 
more  can  l)e  loaned  than  lias  been  deposited  by  the  peo])le. 

The  lending  power  of  banks  is  limited  absolutely  by  the  quantity 
of  the  products,  of  the  real  products,  in  this  country  which  are  not 
consumed  by  the  producers,  but  which  are  saved  and  put  into  the 
banlcs  in  the  shape  of  money.  Some  bankers  do  not  realize  that.  I 
doubt  if  many  of  them  do.  They  have  an  idea  that  their  lending 
power  is  limited  merely  by  the  amount  of  money  they  have,  that  that 
money  is  what  they  lend;  whereas,  as  you  all  know,  it  is  not  money 
at  all,  but  credit,  and  that  credit  is  a  title  to  goods,  and  if  the  goods 
are  not  there  the  credit  that  is  loaned  is  so  much  hot  air. 

The  currency  and  financial  system  of  this  country  is  bad  in  several 
respects.  First,  our  Government  interferes  with  the  money  market 
in  its  collection  of  taxes  and  in  its  disbursements.  Sometimes  it 
inflates  the  money  market  and  drives  gold  out,  as  it  did  in  1894  and 
1895,  when  the  revenues  were  deficient.  Sometimes  it  contracts  the 
money  market.  We  have  the  most  artificial  fiscal  system  of  any 
country  in  the  world.  In  fact,  I  know  of  no  other  country  that  takes 
money  out  of  circulation  when  it  collects  taxes  and  puts  it  back  into 
circulation  when  it  pays  its  debts.  We  adopted  the  present  system 
in  1846.  Prior  to  that  time  we  had  one  of  the  best  fiscal  systems  in 
the  world,  but  a  bull  got  into  our  financial  china  shop  and  scattered 
things.  I  am  something  of  a  Democrat  myself,  but  I  have  never 
liked  the  way  Andrew  Jackson  treated  the  second  Bank  of  the 
United  States.  His  killing  of  that  bank  forced  us  to  adopt  the  inde- 
pendent treasury  system,  which  is  perhaps  the  main  reason  why  you 
gentlemen  are  worrying  about  this  problem  to-day. 

The  second  defect  in  our  system  is  its  lack  of  financial  unity,  a 
point  that  has  been  dwelt  upon  by  the  ]:)receding  speakers.  In  finance 
we  have  never  reached  the  e  pluribus  unum.  We  are  in  finance 
many  units,  antagonistic,  warring  units,  every  man  and  every  insti- 
tution for  himself  and  itself. 

A  third  defect  is  the  inflexibility  and  inelasticity  of  our  currency. 
I  need  say  little  about  that,  for  I  am  sure  you  do  not  need  argument 
on  this  point.  Our  northern  neighbor,  Canada,  has  a  system  which 
enables  her  to  help  us  when  we  are  in  distress.  She  helped  us  to 
move  our  crops  in  1893,  and  I  believe  she  was  a  source  of  strength 
during  the  trying  weeks  of  1907.  Canada  never  has  runs  on  her 
banks,  and,  by  the  way,  the  Canadian  guaranty  fund  has  never  had 
to  pay  out  a  penny  on  account  of  losses  on  bank  notes.  I  ma}''  state, 
apropos  of  what  has  been  said  about  the  failure  of  a  bank  in  Canada, 
that  not  only  is  the  note  of  an  insolvent  bank  worth  par  on  account 
of  the  interest  which  is  paid  on  it,  but  it  is  worth  more  than  par;  so 
t  hat  the  hian  that  wakes  up  in  the  morning  and  finds  the  note  of  a 
closed  bank  in  his  pocket  can  thank  his  stars,  because  his  fortune  is 


228  CUKRENCY   LEGISLATION. 

increased  by  the  amount  of  the  premium  on  the  note.  So  certain 
are  the  people  tliat  those  notes  are  good  and  that  the  system  is  goirg 
t®  result  inevitably  in  the  payment  of  all  the  notes. 

The  fourth  defect  of  our  sj^stem  is  that  we  have  no  guardian  or 
protector  of  the  foreign  exchanges.  In  1894  and  1895  3'ou  recall  how 
the  deficiency  of  the  revenues  kept  the  country  in  a  state  of  perpetual 
panic  for  almost  three  years,  gold  being  constantly  exported.  The 
same  greenbacks  were  presented  over  and  over  for  redemption, 
drawing  gold  from  the  Treasury  and  bringing  the  reserve  down 
below  $50,000,000  several  times.  Finally  the  Secretary  of  the 
Treasury  was  obliged  to  go  to  the  man  in  ISi^ew  York  City  who  com- 
mands the  confidence  of  all,  and  who  in  a  way  is  the  unum,  the  one,  in 
finance  in  tliis  countr}^,  Mr.  Morgan.  They  went  to  him  again  this 
last  year.  You  can  not  get  unity  in  New  York  City  until  everybody 
is  afraid  that  he  is  going  to  be  blown  up  by  financial  dynamite,  and 
then  they  all  go  to  the  one  man,  ^Ir.  Morgan,  who  represents  the  one 
unifying  power  that  I  have  been  able  to  discover  in  finance  in  the 
United  States. 

A  fifth  defect  is  the  insufiicient  capitalization  of  our  banks.  The 
law  in  this  country,  although  nowhere  else,  prescribes  the  amount  of 
cash  reserve  that  a  bank  shall  carry.  Now,  that  is  to  my  mind  a 
rather  curious  thing.  If  I  open  a  grocery  store,  I  learn  by  experience 
how  much  cash  I  need  in  order  to  make  change  for  my  customers 
and  how  much  money  I  ought  to  have  in  the  bank  in  order  to  pay  my 
bills.  The  street-car  conductor  learns  by  experience  how  much  cash 
he  should  take  out  with  him  in  the  morning  in  order  to  make  change. 
But  the  Congress  in  1863  decided  that  banks  in  central  reserve  cities 
should  keep  cash  reserves  equal  to  25  per  cent  of  their  deposits. 
How  could  they  tell  then  what  the  proper  reserve  requirement  would 
be  ten  years  later?  We  can  not  tell  to-day  what  the  reserve  require- 
ments will  be  ten  3"ears  or  five  years  hence. .  However,  I  am  well 
aware  that  it  would  be  impossible  to  change  the  law  at  the  present 
time.  Nevertheless,  we  must  not  forget  that  a  bank's  reserve  of  cash 
is  absolutely  no  indication  of  the  soundness  of  the  institution,  nor 
that  the  adequacy  of  a  bank's  reserve  depends  on  the  character  of 
its  liabilities  and  not  on  its  geographical  location.  If  the  law  did 
not  prescribe  the  reserves  of  national  banks,  I  am  confident  that  cer- 
tain national  banks  in  New  York  City  would  be  doing  what  the  Bank 
of  England  is  doing  to-day — carrying  reserves  from  40  to  50  per  cent. 
The  law  says  25  per  cent  is  enough;  hence,  every  banker  thinks  it 
enough.  It  is  not  enough  for  some  banks  in  New  York  City,  and  it 
is  more  than  enough  for  others. 

Bank  (•a]>ital  needs  regulation  mucli  more  (ban  bank  reserves. 
During  tlie  last  ten  years  the  ratio  of  national  banking  capital  to 
liabilities  has  declinefl  from  19  per  cent  to  alxmt  12  ])er  cent.  There 
has  been  a  steady  decline  in  the  ratio  that  the  capital  bears  to  the 
total  of  the  debts  of  the  banks.  When  I  say  "capital "  I  mean  capital 
and  surplus,  all  that  belongs  to  the  stockholder.  What  the  stock- 
holder puts  into  the  bank  is  not  held  in  money,  and  should  not  be. 
It  may  go  into  li((uid  assets  or  it  may  go  into  cash,  but  it  is  the  c.(m- 
tribution  of  the  stockholder  to  resources  of  tJie  institution  to  pro- 
feet  outside  creditors;  and  as  those  creditors  increase  as  the  lia- 
bilities ()!'  the  bank  increase,  the  capitalization  of  the  bank  ought 
to  incre;is(>.      Wv  jiavc,  indeed,  increased  the  total  of  banking  capital 


CURRENCY  LEGISLATION-.  229 

during"  the  last  decade.  It  has  increased  from  S5UU,U00,U00  to 
$900,000,000.  But  all  that  increase  has  been  taken  away  from 
business;  all  that  money,  which  was  intended  for  the  aid  of  business 
and  industry,  has  been  locked  up  in  Government  bonds  on  account 
of  our  curious  bank-note  system. 

Right  here  let  me  add  a  word  to  what  Mr.  Gage  and  Mr.  Conant 
said  with  regard  to  banks  lending  on  securities.  When  a  bank  lends 
$10,000  on  railroad  stock  it  is  really  investing  its  own  money  in  a 
railroad.  It  is  diverting  commercial  capital,  the  capital  wliich  has 
been  saved  and  put  into  the  bank  for  the  use  of  merchants  and 
marmfacturers,  and  gi\"ing  it  a  fixed  investment.  For  instance, 
suppose  I  have  $10,000  that  I  would  like  to  use  in  my  business,  but 
I  would  like  to  make  all  that  I  can  out  of  it.  So  I  buy  $10,000 
worth  of  railroad  stock  and  then  borrow  from  my  bank  $8,000  or 
$9,000,  using  the  stock  as  collateral.  Now,  whose  money  has  gone 
into  the  railroad?  Certainly,  if  the  bank  had  not  been  willing  to 
lend  me  money  on  the  stock  I  should  not  have  bought  the  stock, 
but  would  have  put  my  money  into  my  business,  where  I  needed  it. 

I  have  mentioned  now  all  the  financial  and  currency  evils  of  our 
system.  About  two  weeks  ago,  thinking  this  subject  over  and  not 
kno\^ing  that  I  was  going  to  appear  before  you,  I  wrote  a  short 
article  entitled  "Schemes  for  currency  reforms,"  which  was  published 
in  the  Journal  of  Accountancy.  I  discussed  briefly  the  plan  wliich 
has  been  introduced  by  Mr.  Aldrich  in  the  Senate  for  emergency  cur- 
rency, and  1  said  with  regard  to  that  plan  something  which  I  will 
read  to  you. 

Sucli  measures  do  not  aim  to  furnish  an  elastic  currency,  one  that  shall  expand  in  the 
autumn  and  contract  in  the  spring,  but  merely  provide  for  an  increased  issue  of  cur- 
rency in  periods  of  financial  stress.  *  *  *  Experience  has  proved  that  clearing- 
house certificates  backed  by  commercial  assets  of  banks  can  safely  be  relied  upon  to 
satisfy  the  local  need  for  currency  in  times  of  panic.  It  may  be  well  to  place  legal 
sanction  on  this  kind  of  currency,  but  it  is  impossible  to  see  why  anything  more  should 
be  attempted.  As  for  Senator  Aldrich 's  bill,  if  one  of  its  effects  shall  be  to  prevent  the 
issue  of  clearing-house  currency,  such  as  the  country  used  in  November  and  December 
of  1907,  it  would  leave  the  banks  in  a  worse  plight  than  they  are  now.  Commercial 
banks  do  not  make  a  practice  of  owning  bonds  of  any  kind.  These  are  fixed  assets  and 
have  no  place  on  the  ledger  of  a  commercial  bank.  If  Senator  Aldrich's  bill  should 
become  a  law,  only  a  small  number  of  the  national  banks  of  this  country  would  be  in  a 
position  to  avail  themselves  of  its  privileges.  At  the  very  time  when  merchants  most 
needed  help  such  a  law  would  tend  to  draw  the  liquid  capital  of  the  country  away  from 
business  into  various  forms  of  long-time  investment.  It  is  difiicult  to  believe  that  a 
measure  so  impotent  and  so  unsound  in  principle  will  receive  the  approval  of  Congress. 

Now,  6  per  cent  is  a  high  rate  of  interest.  You  can  not  go  above 
that  in  New  '^'ork,  I  believe.  It  is  usury  if  you  do,  is  it  not,  Mr. 
Gage  ? 

Mr.  Gage.  Not  if  it  is  on  demand. 

]\Ir.  Johnson.  The  Aldrich  bill  would  aid  certain  gentlemen  in  New 
York  City  who  wish  to  speculate  on  the  stock  exchange,  for  banks 
can  not  charge  merchants  higher  than  6  per  cent,  and  they  would  have 
to  get  7  or  8  per  cent  before  they  would  dare  to  put  those  notes  out 
subject  to  a  6  per  cent  tax.  Hence  such  a  measure  would  merely  tend 
to  stinmlate  unhealthy  speculation  in  Wall  street.  The  bill  would 
lull  many  people — the  majority  of  people — to  sleep  on  this  subject. 
Mr.  George  called  the  Aldrich  bill  a  narcotic,  but  I  am  inclined  to 
think  it  contains  the  elements  of  a  drunk. 

Then  I  considered  various  plans  for  asset  currency,  and  I  had  to 
admit  in  this  article  that  it  was  very  difficult  to  devise  an  asset 


230  CURRENCY   LEGISLATION. 

currency  issued  by  national  banks  that  would  be  safe.  If  you  have 
a  circulation  like  that  of  Canada,  where  all  paper  money  in  circulation 
is  bank  notes,  it  is  easy  to  show  that  no  more  bank  notes  can  be  put 
into  circulation  than  are  wanted  by  the  people;  and  that  if  more  are 
needed,  more  \\'ill  be  put  into  circulation.  Notice  the  two  important 
points.  Before  you  can  get  elasticity  all  the  paper  money  in  circula- 
tion must  be  bank  notes,  and  the  banks  must  have  the  right  to  issue 
more  notes  than  they  are  able  to  get  out.  The  authorized  issue  of  the 
Canadian  banks  is  now  about  $97,000,000,  yet  they  can  not  get  much 
over  $90,000,000  into  circulation.  If  they  should  succeed  in  getting 
out  ninety-six  or  ninety-seven  millions,  they  would  doubtless  increase 
their  capital  stock,  and  thereby  increase  the  authorized  limit  of  issue. 
The  Bank  of  France  is  authorized  to  issue  notes  equal  to  $1,000, 000, 000, 
whereas  it  now  has  outstanding  somewhere  around  $900,000,000. 

The  Chairman.  The  law  now  is  that  the  limit  is  $1,200,000,000  of 
our  money. 

Mr.  Johnson.  The  Frenclimen  are  the  people  to  go  to  for  the  truth 
about  finance,  and  not  the  Englishmen.  I  am  sorry  to  say  that  the 
English  have  not  learned  anytliing  about  finance  since  1797,  when 
they  lost  their  ^\^ts  through  fear  of  Napoleon.  They  were  scared  to 
death  for  fear  that  the  French  would  get  their  gold  away  from  them. 
The  British  Parliament  ordered  the  Bank  of  England  not  to  redeem 
its  notes  in  gold,  because  they  thought  Napoleon  had  gathered 
together  a  lot  of  its  notes  and  had  agents  over  there  getting  the  gold 
out.  They  have  in  some  respects  a  worse  financial  system  than  ours. 
Its  one  strong  feature  is  the  unity  created  by  the  Bank  of  England. 
Because  of  the  power  of  that  one  central  institution,  in  wliich  all  other 
banks  carry  their  reserves,  a  grain  of  gold  safely  carries  a  much 
heavier  mass  of  credit  than  is  possible  under  the  loose  banking  system 
of  the  United  States. 

Plaving  in  mind  these  two  propositions,  that  our  currency  nmst  be 
saturated  with  bank  notes,  and  that  the  authorized  issue  of  banks 
must  exceed  the  possible  issue,  I  examined  the  statistics  of  our  mone- 
tary circidation  and  found  that  we  currency  reformers  were  iip 
against  a  difficult  proposition.  November  30,  1907,  there  was  in 
circulation  a  total  of  $1,500,000,000  of  Government  paper  money. 
We  had  of  gold  certificates  $747,000,000,  of  silver  certificates 
$472,()()(),000,  of  United  States  notes  $350,000,000.  The  total 
reserve  of  national  banks  at  that  time  amounted  to  $700,000,000— 
gold,  tjold  certificates,  silver  certificates,  United  States  notes,  and 
Treasury  notes.  Of  that,  probably  S25(),()0(),()0()  was  in  the  form  of 
gold  coin  and  bullion  and  $450, ()()("), ()()()  in  ])a])er.  That  leaves  about 
$1,050,000,000  of  paper  money  actually  in  circulation,  in  our  pockets, 
in  tills  of  siiop  keepers,  and  in  vaults  of  wState  banks.  How  are  we 
going  to  saturate  our  currency  with  bank  notes?  We  can  not  do  it 
until  somehow  we  get  rid  of  that  paper  money.  Then  1  wrote  as 
follows: 

Let  us  by  way  of  illustration  examine  tlie  measure  recommended  to  Con<jress  by  the 
American  Bankers'  Association.  In  this  measure  it  was  proposed  tliat  national  banks 
be  authorized  to  issue  unsecured  notes  to  the  extent  of  40  per  cent  of  their  bond- 
secured  circulation,  said  notes  to  be  taxed  at  the  rate  of  2^  per  cent;  also  to  issue  an 
emergency  circulation  equal  to  12^  per  cent  of  their  capital,  taxed  at  t]ie  rate  of  5  or  6 
per  cent  per  annum.  It  was  also  proposed  that  convenient  redemption  agencies  should 
be  maintainerl  throtighout  the  country,  so  that  in  general  no  bank  should  be  more  than 
twentv-four  hours  distant  from  a  redemption  center.  Now^  the  present  capitalization 
of  national  banks  is  about  $900,000,000.     We  may  fairly  assume  that  it  would  be 


CURRENCY   LEGISLATION.  231 

$1,000,000,000  within  a  year  or  two  after  a  measure  of  tliis  sort  shall  have  taken  effect. 
As  the  measure  provides  that  the  total  circulation  of  a  bank  shall  not  exceed  its  capital 
stock,  it  is  evident  that  with  such  a  law  in  force  at  tlie  present  time  the  national  bank- 
ing circulation  could  l)e  only  $300,000,000  larger  than  it  is  now.  Indeed,  the  advocates 
of  the  measure  do  not  contemplate  any  such  increase  of  the  circulation.  Tliey  hold 
that  on  account  of  the  ease  with  which  redemption  could  be  obtained  the  volume  of 
bank  notes  could  not  be  increased  unless  tliere  was  an  actual  increase  in  the  demand 
for  hand-to-hantl  money.  In  this  view,  it  seems  to  me,  they  are  mistaken.  It  must 
be  admitted  that  a  bank  having  on  liand  a  supply  of  its  own  notes  will  always  pay  them 
out  in  preference  to  other  forms  of  currency.  As  greenbacks  and  other  forms  of  lawful 
money  flow  into  such  a  l)ank  they  will  certainly  be  added  to  its  reserve,  while  the  cash 
payments  will  be  made  in  the  notes  of  the  bank.  It  follows,  therefore,  that  if  the 
national  banks  of  the  country  had  on  hand  $300,000,000  in  their  own  bank  notes,  a 
constant  stream  of  fresh  bank  notes  would  be  going  into  circulation  and  an  eciually 
large  flow  of  lawful  money  would  be  disappearing  from  circulation  into  the  reserve 
vaults  of  the  banks.  The  fact  that  redemption  was  made  easy  would  not  stop  this  sub- 
stitution of  bank  notes  for  reserve  money.  It  would  simply  make  the  process  of  sub- 
stitution a  little  slower  than  it  otherwise  would  be,  but  the  process  itself  would  go  on 
until  Anally  each  bank  had  got  into  circulation  all  its  authorized  issue  and  was  holding 
in  its  stead  an  equivalent  amount  of  lawful  money.  The  net  result,  therefore,  would 
be  merely  the  substitution  in  the  country's  circulating  medium  of  $300,000,000  in 
bank  notes  for  $300,000,000  in  lawful  money  and  a  corresponding  increase  in  the  bank- 
ing reserves  of  the  country.  Such  an  increase  of  banking  reserves,  unless  brought 
about  during  a  period  of  extraordinary  increase  in  the  need  for  money,  would  evidently 
mean  inflation,  an  artificial  stimulus  to  prices,  and  a  large  export  movement  of  gold. 
And  at  the  end,  after  the  banks  had  issued  notes  to  the  authorized  limit,  the  currency 
would  be  practically  as  inelastic  as  it  was  at  the  beginning,  for  each  bank  w'ould  have 
put  into  circulation  all  its  authorized  issue  and  would  be  powerless  to  respond  to  any- 
increased  demand  for  cuiTency. 

If  I  am  right  in  this  conclusion,  it  follows  that  no  plan  for  the  issue  of  bank  notes 
by  national  banks  can  add  an  elastic  element  to  the  currency  unless  it  provides  for 
the  easy  issue  of  over  $900,000,000  of  bank  notes,  and  it  could  not  be  in  effective 
operation  until  bank  notes  had  taken  the  place  in  the  coimtry's  circulating  medium 
of  about  $900,000,000  of  lawful  money.  After  all  that  amount  of  Government  credit 
money — United  States  notes,  gold  certificates,  and  silver  certificates — had  been  dis- 
placed by  bank  notes,  then  jfurther  issues  of  bank  notes  would  be  impossible  unless 
there  were  an  actual  increase  in  the  need  for  currency. 

We  should  then  have  a  really  elastic  currency,  and  with  the  exception  of  one  and 
two  dollar  bills  it  would  consist  entirely  of  bank  notes.  But  this  end,  desirable  as  it  is, 
can  not  be  reached  except  by  a  most  perilous  path.  Evidently,  if  our  banks  are  to 
substitute  bank  notes  for  the  lawful  money  now  doing  service  as  pocket  and  till  money, 
the  reserves  of  the  banks  must  absorb  some  $900,000,000  of  lawful  money  diu"ing  the 
process.  This  would  mean  a  doubling  of  the  lawful  money  reserves  of  our  national 
banks  and  a  possible  doubling  of  discounts  and  deposits.  Such  an  expansion  of  credit 
would  almost  certainly  bring  on  an  outflow  of  gold  that  might  cause  great  alarm  among 
business  men  and  ^yould  certainly  prove  a  serious  strain  upon  the  resources  of  our 
National  Treasury. 

The  real  objection,  then,  to  asset  currency  in  the  United  States  does  not  lie  in  the 
nature  of  such  currency,  but  in  the  peril  which,  under  existing  conditions,  must 
attend  its  introduction.  The  United  States  has  never  had  better  currency  of  any 
kind  than  that  supplied  before  the  civil  war  by  the  banks  of  New  England,  and  no 
country  now  has  better  currency  than  that  supplied  by  the  banks  of  Canada.  Yet 
when  we  analyze  any  scheme  proposing  that  our  national  banks  be  permitted  to  fur- 
nish us  similar  currency  in  this  country  we  are  brought  immediately  face  to  face  w'ith 
the  difficulties  and  perils  of  transition.  The  real  (juestion  is  not  what  is  a  good  sj^stem 
•f  bank-note  issue,  but  how  can  we  pass  from  our  present  bad  system  to  one  that  is 
good? 

In  my  opinion,  gentlemen,  the  Fowler  bill  is  a  most  satisfactory 
answer  to  the  difficult  questions  raised  in  the  foregoino:.  At  first  I 
balked  at  the  guaranteeing  of  deposits.  That  seemed  too  much  like 
prajnng  to  the  Lord  that  he  would  let  us  drink  all  the  champagne  we 
want  and  give  some  other  fellow  the  headache.  But  when  I  con- 
sidered the  nature  of  the  guarantee,  the  fact  that  it  was  not  a  Govern- 
ment guarantee,  but  a  guarantee  or  insurance  of  deposits  b}'  the  banks 
themselves,  the  guarantors  having  the  power  to  inspect  and  regulate 


232  CURRENCY    LEGISLATION. 

every  guaranteed  institution,  I  was  won  over  to  what  seemed  at  first 
an  unscientific  and  dangerous  proposition.  If  one  of  the  district  com- 
mittee provided  for  in  this  bill  discovers  that  any  bank  is  transgress- 
ing the  laws  of  sound  banking,  the  committee  will  have  power  to 
compel  a  conservative  policy.  The  Canadian  banks  possess  similar 
power  at  the  present  time,  and  that  fact  is  one  of  the  main  reasons 
why  Canadian  bank  notes,  although  unsecured,  are  above  suspicion. 
Canadian  banks  are  tied  together  by  a  common  guaranty  fund  for  the 
protection  of  note  holders.  On  account  of  the  financial  responsibility 
which  each  Canadian  bank  assumes  for  the  operations  of  its  neighbors 
they  have  developed  a  system  of  bank  examinations  outside  of  the 
law,  which  is  about  as  penetrating  and  perfect  as  human  ingenuity 
can  devise.  I  regard  it  a  most  excellent  feature  of  the  Fowler  bill  that 
it  will  compel  the  bankers  of  the  United  States  to  keep  a  sharp  eye 
upon  one  another. 

The  Fowler  bill  does  away  with  Government  interference  with 
the  money  market,  for  it  proposes  that  the  Government  shall  deposit 
its  money  in  the  banks  and  charge  interest.  I  can  see  no  reason 
why  anyone  should  object  to  depositing  the  Government's  money 
with  national  banks  without  the  exaction  of  special  security  when 
the  Government  has  its  hands  on  all  the  assets  of  the  banks,  and 
furthermore  is  protected  by  a  joint  guarantee  fund. 

The  bill  also  takes  a  step  toward  financial  unity.  It  gives  us  a 
central  board  of  financiers,  each  man  bringing  information  about  a 
different  part  of  the  country.  That  is  a  most  important  point  in 
its  favor. 

As  for  the  regulation  of  the  foreign  exchanges,  I  believe  this  bill 
would  put  us  in  a  much  stronger  position  than  we  now  are  in.  When 
inflation  is  causing  an  undesirable  or  harmful  exportation  of  gold 
we  shall  be  able  to  locate  the  inflation  and  to  check  it. 

But  how  about  my  propositions  (1)  that  we  must  have  a  currency 
saturated  with  bank  notes  before  we  can  have  an  elastic  currency, 
and  (2)  that  the  limit  of  issue  must  exceed  the  amount  needed? 
Here  I  find  the  supreme  quality  of  financial  genius  in  the  Fowler 
bill.  In  the  simplest  possible  way  it  clears  the  field  of  Government 
paper  money — $1  and  $2  bills  excepted — and  then  makes  inevitable 
an  increase  of  national  banking  capital  sufficient  to  provide  for  the 
complete  saturation  of  the  circulation  with  bank  notes.  The  bill 
in  operation  will  undoubtedly  result  in  the  doubling  of  the  reserves 
of  national  banks  and  yet  not  open  the  door  to  inflation,  for  State 
banks  will  practically  be  compelled  to  reorganize  as  national  banks 
and  to  increase  their  reserves  accordingly.  I  do  not  believe  the  guar- 
anteeing of  deposits  would  result  in  bad  banking,  or  that  anybody 
would  deposit  in  'Smy  old  national  bank."  People  would  select 
their  banks  as  they  do  now;  and  the  committees  provided  for,  as 
definitely  as  the  Canadian  examining  committees  do,  would  keep 
such  close  watch  and  have  such  a  strong  whip  hand  over  the  banks, 
that  I  am  inclined  to  think  there  would  be  less  unsound  l)anking 
than  there  is  now. 

Before  J  close  I  want  to  tell  you  a  short  story  about  early  banking 
in  this  country.  In  1791  the  American  Congress,  in  conformity  with 
a  plan  sul)mitted  by  Alexanth'r  llamilt(m,  gave  a  twenty-year  char- 
ter to  the  First  Bank  of  the  United  States.  That  bank  was  modeled 
somewhat    after    the    Bank    of    England.     The    capital    stock    was 


CURRENCY   LEGISLATION.  233 

$10,000,000,  of  which  the  Government  subscribed  two-fifths.  The 
bank  had  the  right  to  issue  notes  up  to  the  amount  of  its  capital 
stock.  It  did  business  for  twenty  years,  and  there  was  no  panic  in 
those  twenty  years.  There  was  no  wildcat  currency  or  red-dog 
money  in  those  twenty  years.  You  know  the  name  it  accjuired — 
"The  regulator  of  the  currency."  It  collected  money  for  the  Govern- 
ment and  made  disbursements  for  the  Government.  If  a  State  bank 
refused  to  redeem  its  notes,  the  Government  bank  refused  to  accept 
them  either  on  deposit  or  in  payment  of  taxes.  That  was  the  whip 
that  kept  the  small  banks  in  order;  and  the  country  as  a  result 
enjoyed  the  advantages  of  a  currency  th'at  was  both  sound  and  elas- 
tic. Political  hostility  and  the  jealousy  of  State  banks  blocked  the 
renewal  of  the  charter  in  1811.  Financial  and  monetary  chaos 
ensued  and  during  the  war  of  1812  the  United  States  was  practically 
a  bankrupt  nation,  being  compelled  to  accept  depreciated  bank  notes 
in  the  collection  of  revenues. 

In  1816  the  Second  Bank  of  the  United  States  was  chartered,  with 
a  capital  of  $35,000,000,  the  Government  subscribing  two-fifths. 
Throughout  the  active  career  of  this  bank,  mitil  after  Andrew  Jack- 
son withdrew  the  Government  deposits  and  put  them  into  State 
banks,  you  will  find,  if  you  study  the  history  of  the  country  impar- 
tialh^,  that  we  had  no  bad  banking  and  that  our  currencv  was  as 
good  as  the  national-bank  money  to-day.  Hence,  while  I  favor  the 
Fowder  bill,  I  do  not  regard  it  as  the  final  solution  of  our  currency 
and  fmancial  problem.  It  is  by  no  means  a  makeshift  or  temporary 
measu're,  yet  even  if  it  shall  be  enacted  into  law  the  work  of  reform 
will  not  be  completed.  This  great  country  needs  fuiancial  imifica- 
tion  in  the  highest  degree,  and  that,  it  appears  to  me,  can  only  be 
achieved  b}^  the  establishment  of  a  Government  bank.  Private  per- 
sons may  own  its  stock,  as  they  do  the  stock  of  the  Bank  of  Germany, 
but  the  management  should  be  vested  in  representatives  of  the  peo- 
ple of  the  United  States.  I  will  not  take  up  your  time  with  details, 
for  I  am  told  that  such  a  bank  is  politically  impossible. 

When  I  was  going  arofund  the  country  two  years  ago  for  the  New 
York  Chamber  of  Commerce,  I  presented  to  numerous  bankers  argu- 
ments in  favor  of  a  central  bank  of  issue.  This  is  the  way  they 
answered:  "I  am  in  favor  of  that,  Johnson.  That  plan  is  all  right, 
but  we  never  can  get  it  through.  Everybody  is  against  it."  Finally 
I  said,  "I  have  been  in  ten  States  and  talked  with  two  hundred 
bankers.  Do  you  know  where  Mr.  Everybody  lives?"  I  do  not 
believe  that  everybody  is  now  against  it  or  will  be  against  it.  I  think 
everybody  will  be  in  favor  of  it  a  few  years  from  now.  Yet,  if  I  were 
a  member  of  this  committee  I  should  get  very  busy  finding  all  the 
fault  I  could  with  this  bill,  and  making  Mr.  Fowler  defend  it,  and 
when  I  could  not  find  any  further  fault  with  it  I  should  use  my  best 
efforts  to  get  it  before  the  House  and  get  it  passed. 

The  Chairman.  Are  there  any  questions  to  be  asked  ? 

Mr.  Gillespie.  Do  you  think  the  asset  currency  provided  for  in 
this  bill,  taking  into  consideration  the  different  institutions  we  have, 
would  be  a  success  with  the  different  kinds  of  currency  ^ 

Mr.  Johnson.  It  is,  of  course,  a  part  of  the  problem  that  I  did  not 
mention,  that  we  have  State  banks  and  trust  companies  which  count 
bank  notes  as  a  part  of  their  reserves,  and  if  that  l3ill  is  not  sufficient 


234  CURRENCY   LEGISLATION. 

to  draw  most  of  those  institutions  over  into  the  bankinpj  system,  I 
think  it  would  fail. 

Mr.  Gillespie.  The  point  of  that  is  to  gurantee  deposits? 

Mr.  Johnson.  That  is  a  part  of  it. 

Mr.  Gillespie.  Suppose  the  States  overcome  that  by  passing  their 
own  guarantee  laws  to  save  their  own  institutions  1 

Mr.  Johnson.  They  could  not  make  a  guarantee  strong  enough. 

(On  motion  of  Mr.  Weeks  the  thanks  of  the  committee  were 
extended  to  Mr.  Johnson  for  his  interesting  address,  and  at  5  o'clock 
p.  m.  the  committee  adjourned.) 


Committee  on  Banking  and  Currency, 

House  of  Representatives, 

Washington,  D.  C,  Tuesday,  February  25,  1908. 

The  committee  met  at  10.30  o'clock  a.  m. 

Present,  Representatives  Fowler  (chairman).  Powers,  McMorran, 
McCreary,  Burton,  McKinney,  Pujo,  Glass,  Gillespie,  Crawford,  and 
McHenry. 

Present  also,  Hon.  Ebenezer  J.  Hill,  Representative  from  Con- 
necticut; Hon.  Charles  H.  Dickerman,  former  Representative  from 
Pennsylvania;  Andrew  J.  Frame,  Esq.,  of  Waukesha,  Wis.,  and 
others. 

STATEMENT   OF  ANDREW  J.  FRAME,  ESQ.,  PRESIDENT   OF   THE 
WAUKESHA  NATIONAL  BANK,  WAUKESHA,  WIS. 

Mr.  Fr,ame.  Mr.  Chairman  and  gentlemen,  if  I  am  able  to  give 
you  any  light  on  this  subject,  after  you  have  thrashed  it  over  as  you 
have  done  for  a  long  period  of  time,  I  shall  feel  that  I  have  done  some- 
thing that  will  be  of  advantage. 

I  think  it  is  generally  admitted  that  as  far  as  the  quantity  of  cur- 
rency that  w^e  have  in  the  United  States  is  concerned — say,  gold, 
$1,600,000,000;  silver,  $700,000,000;  legal-tender  notes,  $346,000,000, 
and  national  bank  notes,  $690,000,000 — we  have  an  ample  quantity 
under  normal  conditions  in  the  United  States  to-day;  and  the  trouble 
which  came  upon  us  last  fall  so  very  suddenly  was  not,  in  my  judg- 
ment, because  of  any  lack  of  currency.  It  was  because  of  an  over- 
expansion  of  our  credit  not  only  in  the  United  States,  but  in  Europe 
as  well.  They  were  expanded;  their  pyramid  of  crecht  had  grown 
to  colossal  proportions;  it  also  had  done  so  in  the  United  States. 
Speculation  had  run  its  course  from  1896  up  to  this  date,  with  a  con- 
stantly accelerating  pace.  I  think  that  if  anyone  will  read  carefully 
liistor}"  and  political  economy  he  will  find  that  it  is  simply  a  case  of 
history  repeating  itself.  After  a  period  of  overexpansion  we  get  into 
trouble  and  have  to  rectify  ourselves.  I  think  it  is  as  clearly  expressed 
in  what  Siunner  says  in  his  History  of  American  Currency  as  any- 
where : 

"Overspeculation  is  speculation  which  outstrips  the  capital  of  the 
country;"  further,  "When  we  lose  our  heads  in  the  intoxication  of 
our  own  achievements,  look  on  currency  anticipations,  which  are 
only  fictitious  capital,  as  if  they  were  real,  use  them  as  ah'cad}^  earned, 
build  other  expansions  upon  them,  then  we  bring  a  con\n.ilsion  and 
a  downfall;  some  time  or  other  a  liquidation  must  come.  Then 
credit  breaks  down  and  there  must  be  a  settlement,  a  liquidation,  a 
dividend,  a  new  start." 

I  think  that  is  exactly  what  occurred  in  the  United  States  this 
last  year. 

235    - 


236  CURRENCY   LEGISLATION. 

The  only  question  is  with  us,  in  my  judgment,  ''How  can  we  be 
let  do\\ai  easily?"  We  might  say, ' 'Two  steps  at  a  time  from  the  top  of 
the  building  without  falling  from  the  top  of  the  building  upon  the 
sidewalk  with  such  a  crash  as  evidently,  last  fall,  jarred  the  world." 
If  we  could  accomplish  that  it  would  be  of  incalculable  benefit  to 
labor  and  capital  alike,  because  this  sudden  drop  is  what  stopped 
manufacturers  and  tradesmen  from  doing  business;  and  when  we 
stop  the  manufacturer  and  the  merchant  from  doing  business  we 
turn  labor  out  of  employment.  And  that  is  the  underlying  cause  of 
our  prosperity — keeping  labor  employed. 

The  failure  of  Morse  and  Heinze  in  their  pyramid  banking  of  course 
brought  on  distrust  in  New  York;  and  as  the  other  banks  were  some- 
what familiar  with  the  condition  of  affairs  which  were  in  vogue  with 
thosebankers,  they  knew  that  they  were  not  doing  astrictl}"  legitimate 
business,  and  they  refTised  the  assistance  which  they  desired.  They 
ought  to  be  weeded  out;  I  do  not  tliink  anybody  will  deny  that. 
But  in  doing  so,  as  we  were  in  an  expanded  condition,  the  question 
was  how  the  rest  of  the  banks  in  New  York  would  get  along  when 
fright  took  hold  upon  the  people  of  the  country,  as  it  naturally  did 
to  a  certain  extent,  especially  after  the  action  of  the  New  York  clear- 
ing house  in  suspending  cashpa3anents.  That  action  was  flashed  across 
the  continent  and  almost  general  suspension  followed  in  the  great 
centers.  In  quite  a  number  of  the  interior  towns,  however,  that  was 
not  the  case.  I  have  the  honor  of  being  president  of  a  bank  with  two 
and  a  quarter  million  dollars  of  deposits,  located  in  a  city  with  a  popu- 
lation of  8,000  people,  where  we  did  not  even  limit  cash  payments. 

The  Chairman.  Do  you  mean  capital?  What  did  you  say  the 
capital  was? 

Mr.  Frame.  The  capital  of  the  bank  is  $150,000. 

Mr.  Gillespie.  You  mean  the  deposits,  then? 

Mr.  Frame.  The  deposits  were  two  and  a  quarter  millions. 

Mr.  Gillespie.  You  said  "capital." 

Mr.  Frame.  I  beg  your  pardon.  We  did  not  suspend  or  even  limit 
cash  payments.  We  were  only  20  miles  from  the  city  of  ]\Iilwaukee, 
where  cash  payments  were  suspended  immediately  after  New  York 
had  flashed  the  information  across  the  continent.  We  attribute  that 
to  conservatism  on  our  part;  and  through  not  doing  so,  in  all  human 
probability  we  did  not  have  as  much  cash  drawn  as  otherwise  would 
nave  been  called  for.  As  an  illustration,  farmer  after  farmer  would 
come  into  the  bank  with  a  certificate  of  deposit  for  perhaps  five  hun- 
dred to  a  thousand  dollars,  and  say:  "Can  we  get  our  cash  to-day?" 
"Yes,  sir."  "Are  you  paying  cash?"  "We  are."  "Well,  but  they 
have  suspended  cash  payments  in  ISfilwaukee  and  all  around  the 
county."  "That  is  immaterial;  we  are  paying  cash,  and  we  are 
paying  it  to  everybody  that  desires  it."  We  had  any  number  of 
farmers  say  to  us:  "If  you  liave  it,  and  we  can  get  it,  we  don't  want 
it,"   and  they  would  tiu-n  and  go  home. 

There  are  three  methods  that  appear  to  me  soimd  that  might  have 
avoided  the  colossal  trouble  which  has  ensued.  First,  in  my  judg- 
ment, a  central  bank  plan,  or  a  bank  of  the  banks,  somewhat  similar 
to  the  Imperial  Bank  of  Germany,  is  the  ideal  ])lan,  except  that  I 
would  cHiiiinate  the  branch  l)anking  system  and  simply  have  it  a 
bank  of  rchef  for  banks  generally.  But,  as  I  am  informed  that  is 
entirely  out  of  tlic  question,  at  least  at  this  session,  I  will  not  take 


CURRENCY  LEGISLATION.  237 

your  timo  to  discuss  that  plan,  as  you  doubtless  would  prefer  the 
Aldrich  bill,  which  seems,  in  my  judgment,  next  in  importance  to  it. 
Just  a  word  as  to  the  third  method  to  legalize  clearing-house  certifi- 
cates, on  which  national-bank  notes  might  be  issued  by  the  deposit 
of  clearing-house  certificates  as  latety  issued  with  the  Treasury 
Department,  receiving  therefor  national-bank  clearing-house  notes. 
When  troubles  ensue,  my  experience  has  proved  very  conclusively, 
throughout  the  panics  of  1873,  1893,  and  1907,  that  if  you  have  the 
cash  to  pay  to  the  depositor,  that  kills  panic;  it  is  the  only  method 
to  prevent  great  loss  of  confidence.  Therefore,  instead  of  the  clearing- 
house certificates,  which  are  simply  for  the  pvirpose  of  the  l)anks 
exclianging  between  themselves,  you  must  furnish  something  that 
will  liquidate  the  calls  of  the  frightened  depositors  in  cash;  you 
must  also  have  a  sufficient  quantity  to  loan  to  all  solvent  parties  in 
order  that  the  wheels  of  commerce  be  not  stilled,  as  failure  to  do  that 
is  what  brings  great  distress  and  trouble  as  the  after  effects  of  these 
temporary  spasms. 

I  think  that  you  probably  will  concede  (or  at  least  it  looks  very 
strongly  that  way  to  me)  that  the  Aldrich  bill  is  the  only  one  that  is 
likely  to  be  considered  seriously,  or  has  any  reasonable  probability 
of  enactment.  I  draw  that  conclusion  from  the  sentiment  of  the 
Senate  and  the  expression  of  the  President  in  his  last  message  to 
Congress,  in  which  he  says : 

I  again  urge  on  Congress  the  need  of  immediate  attention  to  the  matter — 

In  speaking  of  currency — 

We  need  a  greater  elasticity  in  our  currency,  provided,  of  course,  that  we  recognize 
the  even  greater  need  of  a  safe  and  secure  currency.  There  must  ahvays  Ije  the  most 
rigid  examination  by  the  national  authorities.  Provision  should  be  made  for  an 
emergency  currency.  The  emergency  issue  should,  of  course,  be  made  with  an  effect- 
ive guarantee  and  upon  conditions  carefully  prescribed  by  tlie  Government.  Such 
emergency  issue  must  be  based  upon  adequate  securities  approved  by  the  Govern- 
ment, and  nrust  l)e  issued  under  a  heavy  tax.  This  would  permit  currency  being 
issued  when  the  demand  for  it  was  urgent,  while  securing  its  retirement  as  the  demand 
fell  off. 

Mr.  Powers.  With  your  permission,  Mr.  Chairman,  I  would  like  to 
ask  j\Ir.  Frame  a  (juestion  right  here. 

Mr.  Frame.  Certainly. 

Mr.  Powers.  Do  you  think  tliat  the  tax  would  secure  the  retire- 
ment of  tliis  currency  ? 

Mr.  Frame.  I  do,  sir. 

Mr.  Powers.  In  what  way? 

Mr.  Frame.  As  1  have  referred  to  that  later,  perhaps  we  nu'ght 
pass  it  tor  the  moment. 

Mr.  Powers.  Very  well. 

Mr.  Frame.  It  is  all  right,  gentlemen,  to  ask  any  questions  that  you 
see  lit.  If  I  can  answer  them  1  well  be  very,  very  glad  to  do  so,  and 
if  J  can  not  I  will  frankly  say  so.  But  I  believe  I  have  that  on  my 
memorandum  here,  so  that  I  will  refer  to  the  retirement  feature  later. 
I  thought  it  would  be  better  to  keep  it  more  in  line  with  the  tliought 
of  expansion  hrst  and  contraction  next. 

Permit  me  to  say  right  here  that  I  am  not  very  much  of  an  en-' 
thusiast  on  the  question  of  elasticity,  for  the  reason  that  I  think  it  is 
very,  very  diflicult  of  accomplishment.     As  you  have  already  found, 
there  are  vast  numbers  of  oIjitis  but  none  have  crvstjillized  into  law. 


238  CURRENCY   LEGISLATION. 

It  is  more  nearly  successful  over  in  Europe,  under  the  central  bank| 
plan,  than  in  any  other  locality  that  I  know  of;  and  also  in  Canada  to 
a  certain  extent. 

The  CHALR^L^]^^  There  is  larger  expansion  and  contraction  in 
Canada  than  an^'Avhere  else. 

Mr.  Frame.  Perhaps.     Yes;  I  tliink  so. 

The  Chairman.  I  mean  per  capita. 

Mr.  Frame.  I  tliink  probably  that  is  so.  But  in  Canada  and  all 
over  Europe  they  have  the  branch  banking  system,  which  I  do  not 
think  the  legislators  nor  the  bankers  nor  the  people  of  the  United 
States  want  to  adopt.  You  can  operate  under  that  system  where 
there  are  onh'  a  few  banks,  such  as  there  are  in  Canada.  There  are 
perhaps  thirty-fire  or  thirty-eight  central  banks,  all  the  rest  of  them 
being  branches.  They  can  pay  out  their  own  notes  through  their 
central  banks,  including  all  of  their  branches,  wliich  are  of  the  same 
kind;  then  they  exchange  them  in  their  different  heads  in  the  different 
provinces.  So  that  the  matter  of  quick  redemption  can  operate 
successfully  there,  where  in  the  United  States,  in  my  judgment,  it  is  a 
physical  impossibility.  For  instance,  the  Waukesha  National  Bank 
has  a  capital  of  $150,000.  It  issues  the  same  amoimt  of  circulation. 
How  is  it  physically  possible  for  the  Waukesha  National  Bank  to  pay 
out  simply  its  own  notes,  and  receive  them  back  again  soon  enough  to 
keep  up  its  reserve  and  pay  out  nothing  else  but  its  own  notes? 

The  Chairman.  That  is  not  what  they  do  in  Canada,  though. 

Mr.  Frame.  But  I  say  that  is  a  physical  impossibility. 

The  Chairman.  But  they  do  not  do  that  in  Canada.  Your  facts 
are  not  right.     They  pay  out  anybody's  notes  in  Canada. 

Mr.  Frame.  It  is  not  considered  the  proper  thing  to  do. 

The  Chairman.  It  is  considered  the  proper  thing  to  do,  and  they 
do  it  invariably — pay  out  the  notes  of  other  banks. 

jVIr.  Frame.  I  do  not  read  it  exactly  as  you  do,  Mr.  Fowler. 

The  Chairman.  A^^iy,  it  is  not  a  question  of  reading  it  at  all;  it  is  a 
question  of  fact.  If  a  bank  has  all  of  its  owai  notes  out,  for  which  its 
interests  are  selfish,  then  of  course  it  does  not  pay  out  the  notes  of 
other  banks;  but  when  it  has  not,  when  its  own  notes  are  all  out,  then 
it  does  pay  out  the  notes  of  other  banks. 

Mr.  Powers.  The  banks  pay  out,  in  preference,  their  own  notes. 

Mr.  Frame.  Yes,  sir. 

Mr.  Powers.  But  they  often  pay  out  other  banks'  notes,  too. 

^Ir.  Frame.  I  agree  with  you  in  that  respect. 

Mr.  Powers.  I  will  say  to  you  that  I  live  within  a  mile  and  a  half 
of  the  border  of  Canada,  and  do  more  or  less  banking  business  over 
there  sometimes. 

Mr.  Frame.  Yes,  sir. 

Mr.  Powers.  They  pay  their  own  notes  in  preference,  but  if  they 
have  not  their  own  for  any  reason  they  give  you  the  notes  of  other 
banks. 

Mr.  Frame.  But  practically  they  do  pay  out  their  own  notes. 

Mr.  Powers.  Mr.  Forgan,  of  Chicago,  for  years  did  banking  right 
alongside  of  where  1  had  a  little  bank,  and  1  know  just  about  what 
the  method  of  doing  business  is. 

Mr.  Frame.  But  I  say  it  is  a  physical  impossibility  for  the  banks 
of  the  United  States  to  do  that,  under  the  independent  banking 
system. 


CURRENCY  LEGISLATION.  239 

The  Chairman.  I  do  not  want  to  disturb  you;  but  in  that  connec- 
tion I  would  Hke  to  have  you  explain  how  it  happened  in  New  Eng- 
land, where  they  had  500  banks  from  1850  to  1860. 

Mr.  Frame.  They  were  not  limited  as  to  the  amount  of  notes  they 
could  issue  as  they  would  be  under  the  national  banking  law. 

The  Chairman.  Oh,  yes;  they  were  all  limited,  every  one  of  them. 

Mr.  Frame.  Did  not  some  of  them  issue  200  per  cent  of  their 
capital  ? 

The  Chairman.  Yes;  some  of  them  issued  50  per  cent,  some  of 
them  65  per  cent,  and  some  of  them  150  per  cent.  They  were  all 
limited,  but  they  ran  all  the  way  from  50  ])er  cent — well,  I  think  some 
of  them  were  as  low  as  25  per  cent — up  to  200  per  cent;  so  they  were 
all  limited. 

Mr.  Frame.  In  those  days  it  was  very  different  from  what  it  is 
to-day,  too. 

The  Chairman.  In  what  respect? 

Mr.  Frame.  The  business  was  ver}^,  very  limited.  The  quantity 
of  business  which  was  done  in  all  of  New  England  at  that  time  prob- 
ably was  not  as  much  at  it  is  in  the  city  of  Milwaukee  to-day. 

The  Chairman.  But  how  would  the  quantity  of  the  business  affect 
the  transmission? 

Mr.  Frame.  The}^  simply  paid  out  their  own  notes,  of  course,  in  a 
very  limited  way,  because  the  business  of  the  country  was  very  lim- 
ited at  that  time. 

The  Chairman.  I  beg  your  pardon;  they  paid  out  everybody's 
notes.     There  was  not  a  State  in  which  there  was  a  limitation. 

Mr.  Frame.  That  was  the  rule,  that  they  should  pay  them  out  as 
long  as  they  held  out. 

The  Chairman.  I  beg  your  pardon;  there  was  no  rule  of  the  kind, 
any  further  than  self-interest  impelled  them  to  pay  out  their  own 
notes,  because  that  would  give  them  interest  on  their  accounts;  that 
is  aU. 

Mr.  McHenry.  Mr.  Chairman,  just  a  question:  What  was  the 
limit  in  the  case  of  the  New  England  banks  at  that  time  ? 

The  Chairman.  The  limit  of  what  ? 

Mr.  McHenry.  The  limit  of  their  issue. 

The  Chairman.  It  ranged  not  only  in  accordance  with  the  size  of 
the  capital,  but  it  ranged  in  different  States  at  different  figures. 
For  instance — I  can  give  it  to  you  in  a  moment — it  ranged  all  the  way 
from  25  per  cent  on  up  to  200  per  cent.  In  some  States  where  the 
capital  was  $100,000  it  would  be  one  thing,  and  if  it  was  $50,000  it 
was  less  in  that  same  State;  but  they  were  all  limited,  all  defuied. 
There  were  500  banks  in  New  England,  and  the  life  of  the  notes  was 
forty-eight  days.  I  simply  bring  that  in  because  that  is  a  question 
for  you  to  discuss  right  here. 

Mr.  Frame.  In  the  early  days,  when  capital  was  insufficient,  cur- 
rency of  that  kind  (wliicli  Professor  Sumner  dubs  "coined  credit") 
was  issued  to  quite  a  material  extent  for  the  purpose  of  furnisliing 
fictitious  capital.     In  these  days  it  is  entirely  minecessary. 

The  Chairman.  How  is  that?     Please  make  that  statement  again. 

]\Ii\  Frame.  In  the  early  days  of  a  century  ago  currency  was  issued 
for  the  purpose  of  supphdng  a  lack  of  actual  capital  and  was  called 
''coined  credit,"  and  which  produced  a  fictitious  ca])ital. 


240  CURRENCY  LEGISLATION. 

The  Chairmax.  That  was  where  it  would  be  used  as  reserve;  but 
they  did  not  use  any  of  these  notes  as  reserve  up  there. 

^Ir.  Frame.  They  simpl}"  issued  them  for  the  purpose  of  loaning 
them  to  the  people.     They  "swapped  credit"  with  the  people. 

The  Chairman.  Ah!  They  "swapped  credit,"  but  they  did  not 
loan  the  notes.  They  loaned  the  credit  of  the  bank,  and  they  could 
take  it  on  the  books  subject  to  check,  or  they  could  take  the  notes, 
at  their  option. 

]Mr.  Frame.  The  point  that  you  refer  to,  ]\Ir.  Fowler,  I  think  has 
been  thrashed  out  pretty  thoroughh^,  and  in  the  case  of  a  bank  in 
these  days,  \\dth  the  vast  quantities  of  surplus  capital,  there  is  not 
the  occasion  for  "swapping;  credit"  that  there  was  in  the  early  days 
for  the  purpose  of  furnisliing  a  fictitious  capital  on  which  to  do  busi- 
ness. It  was  a  matter  of  barter  in  those  days,  except  that  this  cur- 
rency was  furnished  occasionally  for  the  purpose  of  facilitating 
trade;  there  was  a  shortage  of  capital,  but  there  is  no  such  shortage 
in  the  United  States  to-day. 

On  the  question  of  elasticity  and  ease  of  issuing  currency,  I  believe 
in  a  high  tax,  because  the  vast  quantity  of  currency  that  we  have  in 
the  United  States  to-day  is  ample  for  all  ordinary  conditions.  In 
the  expansion  of  our  credit,  when  the  country  gets  to  a  point  where 
high  interest  rates  prevail,  in  the  face  of  our  vast  quantity  of  circula- 
tion, that  is  the  inclication  that  the  pyramid  of  credit  has  been  raised 
as  liigh  as  it  ought  to  go,  and  there  ought  to  be  a  halt.  If  you  are 
going  to  increase  the  currency  still  further  and  do  it  at  a  low  rate  of 
interest,  you  will  simply  add  fuel  to  the  fire  of  speculation. 

]Mr.  Gillespie.  Right  there,  Mr.  Frame,  let  me  ask  whether  tliis 
high  rate  of  interest,  instead  of  indicating  a  degree  of  expanded 
credit  or  inflated  values  or  something  of  that  kind,  might  not  indicate 
an  honest  demand,  a  normal  demand  for  more  capital?  Our  volume 
is  too  fixed;  we  need  more.  It  is  not  that  we  have  too  much  or 
enough. 

Mr.  Frame.  In  some  sections  of  our  country  undoubtedly  that  is 
the  case.  It  is  more  confined  to  the  South,  Mhich  is  not  quite  as 
wealthy  and  not  quite  as  largely  developed,  and  the  farther  West, 
which  is  not  developed  as  this  eastern  region,  or  in  the  northwestern 
region  where  I  live.  I  might  make  an  illustration  there,  if  I  will  not 
take  too  mvch  time.  How  much  time  may  be  allowed?  I  do  not 
want  to  weary  you . 

The  Chairman.  Just  proceed  until  you  have  finished  to  your  satis- 
faction. 

Mr.  Frame.  When  I  started  in  the  banking  business,  in  1862,  I 
loaned  money  over  our  counter  at  12  per  cent  per  annum  regularly. 
We  owed  large  quantities  of  money  to  New  England.  Our  farmers 
borrowed  money  there.  By  1875  we  had  it  all  paid  off.  Our  deposits 
were  $50,000  to  $75,000  m  1862.  In  1875  th^y  were  $500,000. 
Since  then  we  have  been  gradually  accumulating  surplus  funds  in 
Waukesha  County,  until  to-daj^  the  deposits  in  the  various  banks  of 
Waukesha  County  are  nearly  $5,000,000.  There  is  an  accumulation 
of  capital  which  has  brought  the  rate  of  interest  down  so  that  any 
customer  that  is  a  regular  customer  of  the  Waukesha  National  Bank 
gets  all  the  accommodation  tliat  he  desires,  providing  he  puts  up  the 
proper  collateral  for  it,  at  5  jkt  cent  interest,  from  January  to  Decem- 
ber.    There  is  an  accumulation  of  surplus  capital. 


CURRENCY  LEGISLATION.  241 

Mr.  Gillespie.  Is  that  surplus  capital  or  surplus  credit?  How 
much  money  have  you  got  under  these  deposits?  Do  deposits  indi- 
cate a  piling  up  of  capital  or  a  piling  up  of  credit? 

Mr.  Frame.  It  is  a  piling  up  of  the  surplus  of  the  farmers  through- 
out Waukesha  County. 

Mr.  Gillespie.  Well,  you  do  not  keep  the  wheat;  you  do  not  keep 
the  money? 

Mr.  Frame.  No,  sir. 

Mr.  Gillespie.  They  have  a  credit  on  the  books  of  the  bank;  is 
not  that  it? 

Mr.  Frame.  Yes,  sir;  then  we  put  it  into  various  kinds  of  loans. 
We  have  more  or  less  bonds.  They  are  convertible  into  cash  if  at  any 
time  we  want  it;  therefore  that  is  surplus  capital. 

The  Chairman.  Wliat  is  the  total  of  the  bank  loans  of  Waukesha 
County  ? 

Mr.  Frame.  I  never  have  figured  it  up,  but  I  do  not  think  they 
amount  to  much  over  a  million  and  a  half  dollars,  or  two  millions. 

The  Chairman.  What  is  all  the  rest  of  the  $5,000,000  invested  in? 

Mr.  Frame.  Largely  in  bonds ;  but  there  are  loans  outside.  Banks 
buy  commercial  paper  at  Chicago  and  elsewhere,  but  as  far  as  the 
Waukesha  National  Bank  is  concerned  we  buy  very  little  commercial 
paper. 

Mr.  Gillespie.  Those  are  credits  themselves — bonds  and  com- 
mercial paper. 

Mr.  Frame.  Yes,  sir;  but  we  can  sell  them  at  any  time  and  get  the 
cash.  I  proved  that  very  conclusively  in  the  panic  of  1873,  when  I 
raised  $100,000  one  day  at  Chicago.  In  1893,  when  one-half  of  the 
total  banking  deposits  of  the  city  of  Milwaukee  were  locked  up  in  sus- 
pended banks,  although  we  were  only  18  miles  away,  and  necessarily 
heard  the  reverberations  up  in  our  little  district,  I  raised  $100,000 
in  three  hours  down  in  Chicago  on  bonds,  and  we  did  not  suspend 
cash  payments  even  then. 

]\Ir.  Glass.  Is  it  usual  for  banks  throughout  the  country  to  carry 
these  bonds? 

Mr.  Frame.  I  was  just  about  to  refer  to  that.  The  Aldrich  bill 
permits  banks  to  use  bonds  for  the  purpose  of  getting  cash  to  relieve 
trouble.  In  1896,  according  to  the  report  of  the  Comptroller  of  the 
Currency,  I  believe  the  national  banks  held  $189,000,000  of  bonds. 
In  the  year  1907  they  held  $705,000,000,  which  shows  a  wonderful 
increase.  That  increase  has  been  brought  about  by  the  vast  accumu- 
lations of  surplus  funds  in  the  prosperous  regions  throughout  the 
country.  I  can  understand  ver}^  clearly  that  some  sections  of  the 
country  are  in  the  same  condition  that  Waukesha  County  was  in  forty 
years  ago.  They  will  emerge  from  it;  but  that  is  not  where  panics 
are  born. 

In  looking  over  the  last  report  of  the  Comptroller  of  the  Currency, 
which  gives  detailed  information  of  the  banks,  I  found  that  in  Wis- 
consin 80  out  of  120  national  banks  have  bonds  which  are  practically 
ample  to  secure  the  advances  to  which  they  would  be  entitled  under 
the  Aldrich  bill. 

Mr.  Gillespie.  What  is  that  sum? 

Mr.  Frame.  Eighty  banks  out  of  120  banks. 

ISIr.  Glass.  Wliat  do  you  estimate  would  be  the  increased  value 
of  those  bonds  should  the  Aldrich  bill  pass  ? 

37381—08 16* 


242  CUKKENCY   LEGISLATION. 

;Mr.  Frame.  I  think  it  would  make  very,  very  little  difi'erence,  for 
this  reason:  In  talking  with  United  States  Treasurer  Treat  yesterday, 
he  said  that  he  had  specific  information  that  under  the  Aldrich  bill 
there  were  two  and  a  half  million  dollars  of  State,  county,  and  city 
bonds  in  the  United  States  that  could  be  used  for  that  purpose. 

(A  gentleman  suggested  that  Mr.  Frame  meant  two  and  a  half 
billion  dollars.) 

Mr.  Frame.  Yes;  two  and  a  half  billion  dollars. 

Mr.  Burton.  It  does  not  seem  to  me  that  that  is  right.  That 
seems  too  large.  It  seems  to  me  as  if  it  must  be  between  those  sums — 
say,  $250,000,000.  There  is  a  limitation  in  the  act,  is  there  not? 
There  is  a  limitation  of  proportion  of  bonds  to  assessed  valuation? 

Mr.  Frame.  Oh,  yes — that  is,  as  to  depositing  them  for  collateral 
security  ? 

Mr.  Burton.  Yes. 

Mr.  Frame.  Just  repeat  that,  if  you  please. 

]Mr.  Burton.  I  say,  it  is  in  a  measure  conjectural  with  me,  but  it 
does  seem  to  me  that  there  can  not  be  two  and  a  half  billions. 

Mr.  Frame.  Mr.  Treat  told  me  yesterday 

Mr.  Gillespie.  Senator  Aldrich  stated  in  his  speech  that  there 
were  two  billions — two  billions  of  State,  county,  and  municipal  bonds, 
and  two  bilUons  of  railroad  bonds. 

Mr.  Burton.  That  is  right,  then. 

Mr.  Frame.  That  would  be  eliminating,  of  course,  the  railroad 
bonds.  If  you  add  the  railroad  bonds,  it  depends  entirely  upon  the 
quality  which  you  will  use  as  to  the  quantity  that  might  be  used  for 
that  purpose. 

Mr.  Gillespie.  The  quantit}^  is. described  in  his  bill. 

Mr.  Frame.  Yes;  the  quantity  is  described  in  his  bill.  I  think 
Mr.  Treat  told  me  that  there  was  somewhere  about  two  thousand 
million  dollars  railroad  bonds  also.  So  that  so  far  as  the  raising  of 
the  valuations  of  those  bonds  to  sluj  very  material  extent  for  the 
purpose  of  raising  only  two  or  three  hundred  million  dollars  of  emer- 
gency currency  is  concerned,  it  would  make  very  little  difference  for 
this  reason:  If  the  bank  which  I  represent  did  not  have  the  quality 
of  bonds  that  might  be  required  under  this  bill,  we  would  shift  some 
of  the  bonds  which  we  now  have  into  the  bonds  that  would  be  required 
under  the  bill,  in  theordmary,  course  of  business.  We  would  then 
hold  those  bonds  as  a  secondary  reserve,  drawing  interest.  We 
would  not  be  in  the  market  to  buy  them  immediately  when  trouble 
ensued.  We  would  simply  take  $125,000  of  the  bonds  which  we 
have  in  our  vaults,  deposit  them  in  the  Treasury  Department,  re- 
ceive $100,000  of  circulation,  and  pay  6  per  cent  on  it;  and  the  only 
extra  expense  over  that  6  per  cent  would  be  the  transportation 
charges.  With  $705,000,000  bonds  now  held  by  national  banks 
and  such  holdings  are  constantl}'^  accumulating,  there  would  be  more 
than  an  ample  supply  on  hand  at  all  times,  on  which  to  obtain  emer- 
gency currency  as  allowed  under  the  bill. 

Mr.  Glass.  If  you  should  be  wrong  as  to  the  Aldrich  bill  vastly 
increasing  the  values  of  these  bonds,  is  not  the  probability  that  you 
would  be  selhng  those  bonds  at  a  large  premium  to  some  of  the  banks 
in  the  Soutli  and  far  West  as  a  basis  of  circulation? 

Mr.  b'KAME.  That  is  just  the  point  which  I  tried  to  make — that  with 
the  small  (juantity  of  currency  that  wovdd  be  recjuired,  and  with  the 


CUERENCY  LEGISLATION.  243 

large  niiniber  of  bank;:  holding  the  exact  bonds  that  would  be  required, 
the  demand  would  V)c  very  slight.  In  fact,  as  far  as  the  banks  are 
concerned  that  do  not  have  tho  e  boiids  in  the  vSouth  and  in  the  far 
western  region^ ,  they  would  not  buy  the  bontU  for  the  purpose  of 
issuing  that  circulation,  because  there  would  be  nothing  in  it.  If 
they  could  borrow  the  bonds  there  would  be. 

Mr.  Glass.  Then,  what  good  w  ill  the  Aldrich  bill  do  the  South  and 
the  Far  West? 

Mr.  Frame.  There  are  certain  sections  of  country,  and  certain 
banks  throughout  the  country,  to  which  I  do  not  think  it  would  be  of 
an}'  very  material  benefit — that  is,  directly.  It  would  indirectly,  how- 
ever; and  as  far  as  taking  care  of  every  little  bank  in  the  country  is 
concerned  by  tho  Ahhich  bill,  I  think  that  is  a  practical  impossibility. 
But  if  you  will  take  care  of  the  great  centens,  and  even  the  vast  num- 
ber of  banks  that  do  have  the  bonds,  you  will  relieve  the  pressure  upon 
the  central  institutions,  which  I  can  show  to  you  right  here. 

Perhaps  I  had  better  state  what  it  is  I  am  referring  to.  This  is  the 
Treasur}^  Department  Abstract  of  Reports  of  Condition  of  the  Na- 
tional Banks,  Ko.  56,  issued  December  23,  1907.  The  central  reserve 
cities,  according  to  that  abstract,  hold  bonds  to  the  extent  of 
$177,000,000.  Other  reserve  cities  hold  bonds  to  the  extent  of 
$143,000,000. 

Mr.  Burton.  That  is,  bonds  other  than  Government  bonds? 

Mr.  Frame.  Other  than  Government  bonds.  Country  banks  hold 
$384,000,000.  So  that  you  can  see  that,  as  far  as  the  holdings  of  the 
banks  are  concerned  to-day,  in  the  case  of  an  issue  of  $250,000,000 
of  emergency  currency  or  even  more  the  banks  are  amply  supplied 
with  the  quantity  of  bonds  that  are  required.  But,  as  I  say,  doubt- 
less more  or  less  of  them  would  gradually  shift  the  quality  of  bonds 
which  they  now  hold  into  the  quality  required.  Then  they  would 
hold  them  as  a  secondary  reserve  on  which  they  could  get  cash  when 
trouble  ensued. 

Mr.  McCreary.  Mr.  Frame,  what  is  the  value  of  the  Government 
2  per  cent  bonds  which  makes  them  sell  at  108^,  as  they  have  sold 
recently?     They  are  selling  at  about  104  now. 

Mr.  Frame.  I  could  not  say  without  a  table. 

Mr.  McCreary.  No;  I  mean,  the  value  that  is  given  to  them  is 
that  they  are  bonds  which  are  necessary  in  order  to  secure  circulation, 
just  the  same  as  under  the  Aldrich  bill  these  railroad  bonds  will  be 
necessary  to  secure  circulation ;  and  that  fact  will  give  them  a  ficti- 
tious value.  The  value  of  the  Government  2  per  cent  bonds  is  ficti- 
tious at  108;  it  is  fictitious  at  104;  it  is  fictitious  at  100.  They  are 
really  worth  and  would  sell  for  investment  purposes  for  about  80. 
Now,  if  that  is  so  with  the  Government  bonds,  how  much  more  so 
would  it  be  with  the  railroad  bonds? 

^Ir.  Frame.  I  tliink  I  grasp  your  suggestion,  and  will  answer  it 
in  this  way:  There  are  between  nine  hundred  million  and  ten  hun- 
dred million  dollars  of  United  States  bonds  outstanding.  There  is 
a  demand  for  them  to  the  extent  of  $700,000,000  as  security  for  cir- 
culation. There  is  also  a  demand  for  them  as  security  for  deposits. 
Estates  hold  some.  They  are  practically  all  absorbed.  You  might 
say  that  you  could  corner  the  market  as  far  as  they  are  concerned. 
You  can  not  corner  the  market  on  county,  State,  municipal,  and 
railroad  bonds  A\dth  such  a  small  demand  to  supply  a  limited  amount 


244  CURRENCY   LEGISLATION^. 

of  emergency  currency  collateral  when  compared  to  the  total 
amount  outstanding,  which   is   permissible  under  the  Aldrich  bill. 

Mr.  McCreary.  If  the  market  on  2  per  cent  bonds  could  be  cor- 
nered— bonds  wliich  are  absolutely  needed  and  necessary  for  circu- 
lation— all  you  would  have  to  do  would  be  to  print  and  put  out 
enough  municipal  bonds  and  railroad  bonds,  which  they  have  galore, 
and  the  market  would  not  be  cornered.  It  would  permit  unlimited 
fictitious  expansion  and  inflation. 

INIr.  Frame.  With  a  demand  for  one  or  two  hundred  or  three  hun- 
dred milhon  dollars  of  currency,  with  twenty-five  hundred  million 
dollars  of  municipal  and  State  bonds,  and  with  the  vast  number  of 
railroad  bonds,  how  can  that  make  any  very  material  dift'erence; 
and  especially  under  the  proposition  wliich  I  have  brought  before 
you  heretofore,  that  as  far  as  the  Yf aukesha  National  Bank  is  con- 
cerned it  has  the  bonds  now.  It  keeps  the  bonds  as  a  continual 
investment  from  year  to  year.  We  have  held  bonds  in  our  institu- 
tion for  thirty  years. 

Mr.  McCreary.  IVIr.  Frame,  is  that  or  is  it  not  because  3'ou  have 
not  the  local  demand  for  loans  in  your  bank? 

Mr.  Frame.  Yes,  sir;  but  here  is  the  indication,  right  here  in  this 
table  which  I  gave  you  from  the  report  of  the  Comptroller  of  the  Cur- 
rency, that  there  is  a  vast  number  of  other  banks  all  over  the  United 
States  that  are  in  the  same  condition  that  we  are.  They  have  the 
bonds;  they  do  not  have  to  buy  them;  therefore  they  do  not  bull  the 
market.  They  simply  take  them  out  of  their  resources,  they  place 
them  in  the  Department  at  Washington,  they  receive  their  currency, 
and  they  do  not  have  to  buy  a  single  bond. 

Mr.  Glass.  But  you  admit,  Mr.  Frame,  that  that  is  not  true  gener- 
ally of  the  banks  in  the  far  West  and  the  South? 

Mr.  Frame.  There  are  more  or  less  of  them  that  it  is  not  true  of, 
sir;  yes,  sir.  I  do  admit  that.  But  I  also  say  that  among  the  coun- 
try banks  is  not  where  the  great  troubles  ensue. 

Mr.  Gillespie.  If  we  started  upon  this  scheme,  Mr.  Frame,  is  it 
your  idea  that  we  would  stop  there,  keep  up  the  interest  rate  of  6  per 
cent,  and  retain  the  limit  on  the  amount  of  bonds?  Do  you  not 
know  that  the  demand  would  grow  to  include  other  bonds,  and  to 
take  down  limitations,  and  to  lower  the  rate  of  interest,  until  finally 
you  would  have  a  system  by  which  you  would  have  a  circulation 
based  upon  bonds  indiscriminately  all  over  this  country? 

Mr.  Frame.  If  we  got  to  that  point  I  should  say  it  was  time  to 
stop;  it  ought  to  be  stopped;  and  that  is  exactly  the  reason  why  it 
ought  to  be  limited  to  securities  of  the  very  highest  class. 

Mr.  Gillespie.  If  there  is  great  danger  of  going  out  into  that  field, 
it  looks  as  if  we  ought  to  stop  before  we  open  the  gate  and  start  in  at 
all,  if  there  is  any  other  safe  way  to  go. 

Mr.  Fi{ame.  If  you  never  legislate  because  you  can  not  have  per- 
fection, you  will  never  legislate  at  all.  You  have  got  to  decide  what 
is  best,  and  do  that. 

Mr.  Chawfohi).  Mr.  Frame,  under  the  Aldrich  l)ill  there  might  be 
a  demand  for  $600,000,000  of  these  bonds;  might  there  not? 

Mr.  Frame.  No,  sir;  I  do  not  think  so. 

Mr.  Crawford.  I  say,  the  limitation  would  be  about  six  hundred 
millions  if  there  should  be  an  immediate  demand  for  it.  Is  not  that 
a  fact? 


CURRENCY  LEGISLATION.  245 

Mr.  Frame.  T  do  not  think  there  is  any  reasonable  ])robabiUty  of 
anything  of  that  kind;  because,  as  I  say,  1  have  been  through  all  the 
panics.  It  is  not  only  true  in  the  United  States,  but  you  can  read  the 
history  of  England,  you  can  reatl  the  history  of  the  same  troubles  all 
over  Europe,  and  you  will  find  that  when  you  have  the  currency  to 
pay  immediately  to  your  depositors  you  break  the  back  of  the  panic, 
and  therefore  you  do  not  want  it. 

Mr.  Crawford.  I  was  going  to  ask  you  this  question,  predicated 
u])on  the  suggestion  I  made:  Would  not  the  investors  in  these  bonds, 
the  private  holders,  hold  them,  seeing  that  there  would  be  a  demand 
for  this  class  of  securities  on  the  part  of  the  banks,  and  the  banks 
would  be  getting  ready  to  provide  themselves  with  the  securities 
reciuired  in  order  to  obtain  the  currency;  and  would  not  that  raise  the 
value  of  all  that  class  of  bonds  ( 

Mr.  Frame.  I  should  think  not:  I  do  not  see  why  it  should. 

Mr.  Crawford.  There  would  be  a  market  in  sight  for  these  bonds; 
and  would  not  all  the  private  holders,  where  they  are  not  in  the  banks 
— you  understand  my  suggestion 

Mr.  Frame.  I  think  I  grasp  that. 

Mr.  Crawford,  (continuing).  Would  they  not  refrain  from  putting 
these  l>onds  on  the  market  for  the  market  price  at  the  time  the  bill 
became  a  law? 

Mr.  Frame.  That  is,  until  there  was  a  strong  demand  for  them  at 
a  high  price  ? 

Mr.  Crawford.  Yes,  sir. 

Mr.  Frame.  Well,  as  I  stated 

Mr.  Powers.  Mr.  Frame,  I  am  a  believer  in  your  views  as  to  raising 
the  price  of  bonds.  Will  you  permit  me  to  make  one  or  two  sugges- 
tions? 

Mr.  Frame.  Yes,  sir. 

Mr.  Powers.  I  believe  that  the  large  c{uantity  of  outstanding 
bonds,  even  if  you  strike  out  railroad  bonds,  makes  it  so  that  this 
proposed  legislation  would  not  materially  raise  the  price,  as  you  have 
suggested. 

Mr.  Frame.  I  think  so. 

Mr.  Powers.  Let  me  call  your  attention  to  another  thing.  At  the 
last  Congress  we  allowed  other  bonds  to  be  deposited  as  a  condition 
of  receiving  the  money  that  is  in  the  Treasury.  We  legalized  that 
de})()sit.  I  do  not  know  how  many  of  those  are  used.  I  saw  by  the 
paj)er  last  night  or  this  morning  that  there  are  $240,000,000  of  Gov- 
ernment deposits  now  in  the  banks  under  that  act;  and  nine-tenths 
of  them — and  I  guess  nineteen-twentieths  of  them — are  in  other  bond 
deposits.  That  did  not  raise  the  price  of  those  other  bonds  that  have 
been  used  by  the  various  banks  as  security  for  that  money. 

Mr.  Frame.  Instead  of  the  market  going  up  in  the  last  three  or 
four  months,  it  has  gone  down. 

Mr.  Powers.  Yes;  that  is  true.  And  while  I  do  not  sa}^  this 
because  I  am  in  favor  of  the  Aldrich  bill,  I  do  not  believe  that  any 
amount  of  bonds  that  woidd  be  used  would  have  any  material  effect 
upon  the  price  of  them;  and  I  do  not  believe  that  the  use  of  some 
two  or  three  hundred  millions  of  bonds  to  get  Government  deposits 
in  the  banks,  which  has  been  done  since  we  passed  that  act,  has 
affected  the  price  of  bonds  at  all. 


246  CURRENCY   LEGISLATION. 

Mr.  Glass.  Is  not  that  because  we  have  an  extraordinary  condi- 
tion in  the  coimtr}^ — demorahzation  and  prostration  of  business? 

Mr.  Powers.  Well,  we  would  do  it  again. 

Mr.  Glass.  Does  not  that  have  a  depressing  effect  upon  the  bonds? 

Mr.  Powers.  I  do  not  think  it  would  if  that  had  not  been  the  case. 
But  we  are  only  going  to  use  these  bonds,  anyhow,  when  we  have  an 
extraordinary  condition ;  and  we  are  only  going  to  use  them  once  in  a 
great  while.  It  is  not  like  the  case  of  the  2  per  cent  bonds.  They 
are  to  be  in  constant  use  under  the  existing  banking  laws;  while  bonds 
to  be  used  under  the  Aldrich  bill  might  not  be  called  for  for  years,  and 
hence  it  would  not  have  that  effect.  I  only  make  that  as  a  suggestion; 
and  hence  I  have  not  placed  much  confidence  in  the  idea  that  this 
would  have  any  particular  effect  in  raising  the  price  of  bonds. 

Mr.  Gillespie.  It  would  not  have  any  depressing  effect  on  them, 
would  it? 

Mr.  Powers.  I  do  not  think  it  would  amount  to  a  tiling.  The 
number  of  the  bonds  is  so  large  that  I  do  not  believe  it  would  have 
any  particular  effect. 

Mr.  Gillespie.  It  looks  to  me  as  though  if  you  enlarge  the  use  of  a 
thing  you  enlarge  the  demand  for  it  and  therefore  you  "boost"  the 
price. 
'     Mr.  Powers.  How  much  do  you  think  it  would  increase  the  price? 

I^Ir.  Gillespie.  To  whatever  extent  you  were  to  enlarge  the 
demand  for  the  bonds;  to  that  extent. 

The  Chairman.  Mr.  Hill  has  just  informed  me  that  a  large  bond 
dealer  told  liim  that  he  did  not  tliink  that  out  of  the  four  billions  of 
bonds,  including  railroads  and  municipals,  more  than  a  bilHon  would 
be  available ;  and  five  hundred  million  is  provided  for.  It  would  be  a 
very  easy  thing,  if  you  could  get  5  per  cent  on  the  bonds,  and  you 
wanted  to  start  into  this  business,  to  go  and  organize  a  bank  and 
take  out  tliis  circulation,  and  then  start  a  trust  company  across  the 
street  to  put  the  notes  out,  take  out  the  money  as  reserve,  and  then 
loan  six  times  as  much  as  the  amount  of  your  notes  wMcli  3^ou  had 
already  created  upon  bonds  upon  whicli  you  were  getting  5  per  cent; 
and  then  you  would  find  yourself  afloat  on  the  world  of  wild-cat 
inflation. 

Mr.  Glass.  There  are  but  two  railroads  in  the  entire  South  whose 
bonds  could  be  used  under  the  Aldricli  bill ;  and  I  doubt  if  there  are 
many  municipahties  in  the  South  whoso  bonds  could  be  used. 

Mr.  Powers.  I  do  not  know  of  a  single  municipality  in  New  Eng- 
land whose  bonds  can  not  be  used. 

^Ir.  Glass.  I  doubt  if  there  are  many  in  the  South  that  could  be, 

Mr.  Powers.  Oh,  in  the  South. 

Mr.  Glass.  For  the  reason  that  the  constitutions  of  many  of  the 
Southern  States  place  a  Umitation  of  18  per  cent  on  the  assessed 
value  on  the  issue  of  bonds.  I  had  a  communication  from  the  city 
council  of  the  city  of  Richmond  the  other  day  asking  that  when  the 
Aldrich  bill  comes  into  the  House  an  effort  be  made  to  amend  that 
feature  of  it  so  as  to  allow  the  bonds  of  the  city  of  Richmond  to  be 
available  for  this  purpose.  The  constitution  of  Virginia  allows  an 
issue  up  to  18  per  cent  of  the  assessed  valuation.  The  Aldrich  bill 
restricts  it  to  10  per  cent.  So  that  I  doubt  if  there  are  many  munic- 
ipalities in  the  South  whose  bonds  would  be  available;  and  there 


CURRENCY  LEGISLATION,  247 

are  but  two  railroads  in  the  entire  limits  of  the  South  whose  bonds 
would  be  available  under  the  Aldrich  bill. 

Mr.  Burton.  What  two  railroads  are  those? 

Mr.  Glass.  The  Louisville  and  Nashville  and  the  Illinois  Central. 

Mr.  Hill.  Mr.  Chairman,  may  I  make  just  a  single  suggestion  on 
this  })oint? 

The  Chairman.  Yes. 

Mr.  Hill.  I  do  not  wish  to  interfere.  Mr.  H.  Leroy  Kandall, 
president  of  one  of  the  largest  savings  banks  in  New  England,  was 
here  last  week;  and  he  told  me  that  his  experience  was  that  the 
moment  a  bond  was  passed  by  the  legislature  of  Connecticut,  making 
it  a  lawful  investment  for  our  savings  banks,  it  increased  the  price 
of  that  bond  10  per  cent. 

Mr.  Powers.  It  always  increases  the  price  of  every  bond  to  have 
it  passed  as  an  investment  for  savings  banks. 

The  Chairman.  Taking  them  on  the  whole? 

Mr.  Hill.  Yes;  that  was  his  experience. 

Mr.  Powers.  Generally  all  good  bonds  are  investments  for  savings 
banks,  are  they  not  ? 

Mr.  Hill.  Oh,  no;  not  in  New^  England. 

Mr.  Powers.  I  mean  municipal  bonds. 

Mr.  Hill.  They  must  be  specified  by  the  legislature.  They  can 
not  invest  in  any  bonds  except  those  that  the  legislature  previously 
acts  on. 

Mr.  Powers.  That  is  not  so  in  ]\lassachusetts  or  Maine.  In  those 
States  if  they  are  good  bonds  they  are  all  right.  However,  that  is  a 
mere  matter  for  future  speculation  as  to  what  efl^ect  it  would  have  on 
these  bonds.  We  have  a  general  law  stating  what  bonds  shall  be 
used,  and  you  have  to  bring  yourself  within  the  rule  in  order  to  sell 
them.  For  investments  for  savings  banks  they  always  sell  them 
that  way,  and  all  our  bonds  are  intended  to  l)e  brought  within  that 
rule. 

Mr.  Frame.  After  a  panic  is  over — and  it  generally  runs,  perhaps, 
for  two  or  three  months — the  currency  becomes  plethoric  and  the 
banks  wish  to  reduce  it.  It  has  always  been  so  in  every  panic  that  I 
have  ever  passed  tlu-ough.  Then,  if  there  is  a  6-per-cent  tax  upon  it, 
it  certainly  will  be  reduced  voluntarilj^,  because  there  will  be  no  profit 
in  it;  and  therefore  the  currency  that  comes  out  under  this  bill  is  a 
measure  of  relief  under  pressure.  Then  the  bank  that  desires  to 
reduce  its  circulation  simply  has  to  deposit  legal  tenders  with  the 
Treasury  Department  or,  imder  the  Aldrich  bill,  national-bank  notes. 
That  process  of  the  deposit  of  those  notes  with  the  Treasury  Depart- 
ment and  the  taking  up  the  securities,  if  it  is  done  simultaneously 
by  all  of  the  banks  that  have  gotten  out  this  extraordinary  currency, 
reduces  the  volume  of  currency  in  the  country  to  exactly  its  normal 
level — the  same  level  that  existed  before  the  trouble  ensued. 

If  the  banks  return  their  owm  national-bank-note  currency,  the 
Treasury  Department  simply  takes  it  and  cancels  it.  and  it  is  not 
reissued.  If  other  bank  notes  are  deposited,  redemptions  are  made 
from  lawful  money  deposited  under  present  law.  The  law  of  1890, 
permitting  the  Treasury  to  pay  out  laA\'ful  money  deposited  for 
retirement  of  bank  notes,  diverts  such  funds  and  should  be  repealed. 
The  plea  that  trouble  would  ensue  because  of  a  shortage  of  legal- 
reserve  money  is  not  well  taken.     Late  reports  show  cash  reserves 


248  CURRENCY   LEGISLATION. 

held  b}^  banks  approximate  $700,000,000;  total  legal-reserve  money 
in  the  country,  about  $2,350,000,000.  If  it  is  in  legal-tender  notes, 
then  the  notes  that  are  outstanding  can  be  sent  in  for  redemption  by 
any  bank  that  may  be  short  in  its  reserve  at  any  time.  If  there  is 
any  trouble  about  reserves,  the  bank  that  holds  the  national-bank 
notes  will  simply  send  them  to  the  Department  at  Wasliington 
and  receive  the  legal  tender  in  return.  Their  reserve  is  fixed.  But 
no  bank  ^\"ill  take  up  its  securities  and  return  this  circulation  as  long 
as  there  is  a.nj  trouble.  Just  as  quickly  as  the  trouble  is  over — and, 
as  I  say,  it  is  generally  over  in  two  or  three  months — it  is  retired,  and 
you  are  back  in  a  normal  condition,  and  then  you  have  no  inflation. 

A  low-rate  tax  would  keep  tliis  currency  out  just  as  long  as  there 
was  any  profit  in  it.  It  is  human  nature.  If  there  Avas  an  addition 
of  1  per  cent  per  month  to  the  tax  after  the  currency  had  been  out  for 
three  months,  I  do  not  think  it  would  be  objectionable  at  all;  because 
if  there  were  any  of  the  western  or  southern  regions  where  the  rates  of 
interest  were  very  high,  and  j^ou  wanted  it  retired,  that  would  compel 
its  retirement  just  as  quickly  as  they  could  not  make  any  money  out 
of  it.  Or  you  could  have  a  date  fixed,  although  I  do  not  like  the 
fixed  date,  or  the  Comptroller  of  the  Currency  might  have  power  to 
call  the  notes  in  and  insist  that  they  be  retired,  or  find  out  the  reason 
why.  As  far  as  the  great,  wealthy  regions  are  concerned,  it  would 
be  done  very,  very  quickly.  The  last  notes  that  would  come  in, 
probably,  would  be  from  tlie  small  western  country  towns  where  the 
rate  of  interest  is  very  high;  at  least,  it  strikes  me  that  way. 

I  think,  gentlemen,  that  I  ought  not  to  take  any  more  of  your  time, 
because  I  have,  as  clearly  as  I  can,  explained  what  to  my  mind  is 
simplicity  itself.  We  have  a  normal  condition  of  circulation  under 
our  present   arrangement.     When   trouble   ensues   the   Aldrich  bill 

Erovides  cash,  under  a  loan,  with  securities  that  most  of  the  banks 
ave  on  hand  and  a  tax  sufficiently  high  not  to  bring  it  out  unless  it  is 
necessary. 

Mr.  Glass.  Is  it  a  fact,  Mr.  Frame,  that  most  of  the  banks  have 
these  bonds  on  hand?  Is  it  not  a  fact  that  most  of  the  bonds  are 
held  by  a  few  banks  in  the  large  money  centers? 

Mr.  Frame.  That  is  exactly  where  the  trouble  ensues.  It  is  not 
in  the  country  towns. 

Mr.  Glass.  Your  idea,  then,  is  that  the  Aldrich  bill  is  intended  to 
cure  trouble  in  the  large  centers  and  incidentally  prevent  trouble  in 
the  balance  of  the  country? 

Mr.  Frame.  Incidentally  in  the  countrv,  as  the  country  banks  hold 
$384,000,000  of  bonds;  and  in  the  State  of  Wisconsin  SO  banks  out 
of  120  have  the  bonds. 

Mr.  Glass.  Are  you  prepared  to  say  to  what  extent  that 
$300,000,000  of  bonds  held  by  the  covmtrv  l)anks  is  available  under 
the  Aldrich  bill? 

Air.  Frame.  I  say  that  if  the  Aldrich  bill  should  pass,  if  the  quality 
of  the  bonds  is  not  wliat  it  might  be  for  use  under  the  Aldrich  bill, 
the  banks  would  gradually  shift  them  from  the  kind  that  the}^  had 
into  the  kind  that  were  rccpiired.  Therefore  they  would  be  always 
pi^epared  to  get  this  extra  currency  in  order  to  stop  panic  and  keep 
the  wheels  of  commerce  in  motion;  the  tax  would  immediateh^  retire 
it  when  the  emergency  was  past,  because  there  would  be  no  profit  in 
it  after  the  trouble  blew  over  and  the  reaction  had  commenced. 


CURRENCY  LEGISLATION.  249 

P  Mr.  Pujo.  ^lay  I  ask  you  a  question,  Mr.  Frame  l  We  are  con- 
sidering the  Fowler  bill  now  by  sections.  Are  you  familiar  in  a 
general  way  with  its  provisions  ? 

Mr.  Frame.  I  am  sorr}'  to  say  that  as  I  did  not  see  it  until  just  a 
day  or  two  ago,  and  as  I  have  been  exceedingly  busy  I  have  not 
had  time  to  go  through  it  carefully;  and  I  do  not  like  to  talk  about 
a  subject  that  I  do  not  at  least  feel  confident  in.  Therefore  I  do 
not  believe  I  ought  to  make  any  comments  on  the  Fowler  ])ill,  which 
on  a  casual  reading  seems  somewhat  revolutionary. 

Mr.  Pujo.  Have  you  given  any  thought  to  and  are  you  willing  to 
express  3^our  opinion  on  the  advisability  of  the  banks  of  this  country 
guaranteeing  deposits  ? 

Mr.  Frame.  1  have  issued  an  address  on  that  subject,  and  I  am 
most  emphatically  opposed  to  tlie  guaranteeing  of  bank  deposits. 

Mr.  Gillespie.  What  is  your  strongest  objection? 

Mr.  Frame.  My  strongest  objection  is  that  I  do  not  care  to  have 
a  banker  across  the  street  take  a  l()an  that  I  turn  down  at  a  higher 
rate  of  interest  than  I  would  take  it  for,  simply  because  he  is  willing 
to  take  the  risk.  To  draw^  business  such  a  banker  will  pay  a  higher 
rate  of  interest  than  I  am  willing  to  pay  on  deposits.  Men  who  are 
nmning  that  kind  of  banks  are  in  evidence  all  over  the  country  even 
now.  If  1  turned  the  loan  down  and  he  took  it,  and  he  should  sus- 
pend or  fail,  I  woidd  be  compelled  to  pay  for  the  liquidation  of  the 
deposits  in  his  bank.  I  am  conservative;  he  is  not.  I  say  that  there 
is  no  law  which  you  can  put  upon  the  statute  books  that  will  ever 
reojulate  the  l)anks  so  that  they  will  not  do  piratical  things.  They 
will  bid  for  deposits  in  all  sorts  of  ways. 

Mr.  Pujo.  Suppose  they  are  limited  to  2  per  cent  ? 

Mr.  Frame.  It  does  not  make  any  difference  if  they  are;  they  will 
give  you  exchange  for  nothing;  they  will  do  any  number  of  things 
that  you  can  not  name  in  a  bill. 

The  Chairman.  That  would  l)e  helpful  to  commerce,  would  ii  not, 
if  the}'  gave  you  exchange  at  a  low  rate? 

Mr.  Frame.  It  would  be  helpful  to  commerce,  but  it  would  be 
death  to  the  fellows  doing  business;  and  I  tliink  that  both  of  them 
ought  to  prosper.  I  do  not  think  it  is  possible  to  put  any  law  based 
upon  equity  upon  the  statute  books  that  will  compel  a  man  running 
a  conservative  institution  to  indorse  for  the  incompetency,  the  dis- 
honesty, the  moral  hazard  of  the  other  man,  nor  to  indorse  for  the 
high  financiers,  whose  reckless  acts  precipitated  the  1907  panic  and 
left  in  New  York  City  alone  $94,000,000  of  unpaid  deposits  to-day. 
And  yet  these  troubles  occurred  und(>r  rigid  banldng  laws.  Perfection 
is  simply  imattainable.  Insuring  deposits  is  an  entirely  different 
proposition  from  that  of  lire  insurance;  and  even  there,  in  tho  cases 
of  the  fires  in  Chicago,  Boston,  Baltimore,  and  San  Francisco  each 
wdped  out  any  munber  of  insurance  companies  that  were  doing  fairly 
well  under  normal  conditions.  As  far  as  an  occasional  depression  is 
concerned,  even  though  you  may  have  a  guaranty'  fiuid,  let  me  refer 
to  the  safety-fund  act  of  New  York  in  1829  and  onward,  under  wluch 
there  was  a  safety  fund  accunudated  of  3  per  cent,  which  proved  a 
failure.  The  banks  ran  along  without  .serious  trouble,  although  thej 
had  a  panic  in  1834-35  and,  I  believe,  in  1837,  but  they  survived  until 
1841.     In  1837,  if  that  safety-fund  sj^stem  was  an  absolute  success. 


250  CURRENCY   LEGISLATION. 

why  did  the  State  of  Xew  York  adopt  the  free  banking  system  right 
where  the  safety-fund  system  was  in  operation? 

The  Chairmax.  Do  vou  know  how  it  was?  Do  vou  not  know  why 
they  did  it  ?  ' 

Mr.  Frame.  I  do  not. 

The  Chairman.  ^^Tiy,  a  man  went  into  court  on  a  deposit  that  was 
put  there  to  secure  notes,  and  he  took  the  case  to  the  Supreme  Court 
on  the  ground  that  this  fimd,  according  to  the  statute,  apphed  to  the 
deposits.  It  was  never  intended  for  the  deposits  at  ah;  but  the 
Supreme  Court  construed  the  3  per  cent  fund  as  apphcable  not  only 
to  the  notes  but  to  the  deposits,  and  of  course  it  was  an  inadequate 
amount. 

Mr.  Frame.  Was  not  that  in  1840,  Mr.  Fowler? 

The  Chairman.  That  accounts  for  the  whole  change  in  the  system. 

Mr.  Frame.  No:  but  the  New  York  banking  bill  was  passed  in 
1837,  and  I  think  the  troubles  ensued  in  1840. 

The  Chairman.  That  was  the  time  of  the  transition,  and  that  was 
the  reason  for  it.  The  whole  thing  was  misconstrued.  It  was  put  in 
for  a  guaranty  of  notes:  and  this  man,  claiming  that  when  the  bank 
failed,  he,  as  a  depositor,  was  entitled  to  his  share  of  it,  took  the  case 
to  the  Supreme  .Court  and  won  it. 

]\Ir.  Frame.  And  in  1841  or  1842,  I  think  it  was,  that  guaranty 
which  the  court  decided  was  good  for  deposits  as  well  as  for  notes  was 
repealed;  and  even  in  1845  there  was  not  enough  money  in  the  fund 
to  the  extent  of  $1,000,000  to  liquidate  the  outstanding  liabilities. 
The  State  even  borrowed  money,  $600,000,  I  believe,  and  paid  6  per 
cent  interest  on  it,  for  the  purpose  of  liquidating  those  liabilities  and 
those  bonds.  I  think  the  whole  thing  was  not  finallv  liquidated 
until  1865. 

I  think  I  started  on  a  point,  and  I  do  not  believe  I  finished  it,  did 
I?  That  point  was  that  the  safety-fund  law  did  not  prevent  trouble; 
it  did  not  prevent  panics,  as  they  had  several  of  them ;  and  that  there- 
fore a  law  of  that  kind  does  not  prevent  trouble  absolutely,  nor,  I 
think,  even  approximately.  But  the  great  and  serious  objection 
with  me  is  that  I  am  not  willing  to  indorse  for  the  other  fellow,  because 
you  can  not  regulate  him;  it  is  absolutely  impossible. 

Mr.  McCreary.  Mr.  Frame,  speaking  right  on  that  line,  uncler  the 
Fowler  bill  there  would  be  a  system  of,  say,  20  or  25  zones.  In  those 
zones  there  would  be  8  men  who  would  be  elected  from  the  (hfl'erent 
banks  in  the  zones;  and  there  would  be  a  deputy  comptroller  who 
would  control  things  in  that  zone  and  require  the  men  doing  business 
in  that  zone  to  do  it  conservatively  and  do  it  safely.  How  would 
that  plan  remedy  the  objection  you  have  as  to  wild-cat  banking  and 
speculation  ? 

Mr.  Gillespie.  And  each  bank  is  to  lose  10  per  cent? 

Mr.  McCreary.  And  each  bank  is  liable  for  10  per  cent  of  the 
losses  that  there  may  be  from  any  baidv  in  the  zone  getting  into 
trouble. 

Mr.  Frame.  I  think  that  if  you  will  concentrate  that  right  where  it 
hes  now,  you  will  get  more  effective  supervision  than  j^ou  will  by  any 
10  or  15  or  20  different  sets  of  men  who  will  look  after  matters  of  that 
kind. 

Mr.  McCreary.  That  is  what  you  would  advocate,  although  you 
do  not  think  it  is  possible  just  now — a  central  bank,  a  centralization 
in  the  zones? 


CURRENCY  LEGISLATION.  251 

Mr.  Frame.  That  is  for  the  redemption  in  different  locaHties? 

Mr.  McCiiEARY.  For  tlie  redemption  and  for  the 

Mr.  Frame.  And  for  examination  also. 

Mr.  McCreary  (continuin<y).  And  for  the  doing  of  business  in 
those  locahties,  and  for  the  issuance  of  currency  based  on  credit,  and 
asset  currenc}';  and  then,  incidentally,  for  the  rights  and  privileges 
that  the  banks  have  of  making  their  loans. 

Mr.  Frame.  I  think  that  from  a  central  jurisdiction  such  as  you 
have  now  it  is  decidedly  more  effective  than  it  would  be  if  you  divided 
it  up. 

The  Chairman.  Has  it  been  very  effective  in  the  past  ? 

Mr.  Frame.  Yes,  sir. 

The  Chairman.  What  ? 

Mr.  Frame.  Yes,  sir. 

The  Chairman.  You  think  that  these  examinations  have  been  most 
efficient,  do  you  not? 

Mr.  Frame.  I  think  that  the  national  banking  system,  as  far  as 
losses  to  depositors  is  concerned,  is  the  best  system  that  any  country 
has  ever  known;  and  statistics  conclusively  prove  it. 

The  Chairman.  How  about  that  Cliicago  bank?  What  was  that 
bank  of  Walsh's? 

Mr.  Frame.  The  Chicago  National  Bank. 

The  Chairman.  The  United  States  Savings  Bank,  the  Equitable 
Trust  Company,  and  the  Cliicago  National. 

Mr.  McKinxey.  Mr.  Frame,  I  would  like  to  ask  you  a  question,  if 
you  please.  From  your  experience  as  a  banker  you  certainly  have 
noticed  a  great  difference  between  individual  bankers  in  regard  to 
credits.  It  has  been  claimed  here  that  the  fear  of  loss  to  the  deposi- 
tors of  a  bank  woidd  keep  individual  bankers  from  making  invest- 
ments that  might  prove  disastrous.  But  is  that  the  case?  Are  there 
not  bankers  that  might  be  called  fair-weather  bankers,  enthusiastic 
people  who  are  never  looking  for  storms  ? 

Mr.  Frame.  Yes,  sir. 

Mr.  McKinney.  They  think  everj^thing  will  go  all  right  and  turn 
out  all  right? 

Mr.  Frame.  Yes,  sir. 

Mr.  McKiNNEY\  And  do  they  not  get  into  trouble  periodically, 
with  the  very  best  intentions,  and  with  no  thought  of  bringing  loss 
upon  their  stockliolders  ? 

Mr.  Frame.  Most  assuredly. 

Mr.  McKiNXEY.  Now,  then,  when  you  come  down  to  a  general  law 
guaranteeing  all  deposits,  should  we  not  at  the  same  time  have  some 
general  law  that  would  make  all  men  equally  careful  and  conserva- 
tive ?     [Laughter.] 

Mr.  Frame.  That  is  very  pat.  That  is  just  why  I  say  you  can  not 
do  it. 

The  Chairman.  Is  there  nothing  further?  Are  you  through,  Mr. 
Frame  ? 

Mr.  Frame.  I  think  I  have  completed  all  that  I  am  entitled  to 
say.  I  will  say  one  thing  further — that  as  far  as  an  asset  currency 
is  concerned,  I  have  been  opposed  to  that,  because  I  believe  in  a 
currency  that  is  so  based  upon  security  that  no  man  will  ever  dis- 
trust it. 

The  Chairman.  Do  they  distrust  the  currency  in  France? 


252  CURRENCY   LEGISLATION. 

Mr.  Frame.  That  is  an  entirely  different  proposition. 

The  Chairman.  Just  a  moment;  answer  me.  Do  they  distrust 
it  in  France? 

Mr.  Frame.  That  is  an  entirely  different  proposition  than  it  is  in 
the  United  States,  Mr.  Fowler. 

The  Chairman.  Do  they  distrust  it  in  Scotland? 

Mr.  Frame.  They  have  an  unlimited  liability  act  there. 

The  Chairman.  Xo;  I  beg  your  pardon;  there  is  no  such  thing 
there. 

Mr.  Frame.  As  far  as  the  currency  is  concerned. 

The  Chairman.  Oh,  the  currency;  yes;  not  for  the  banks. 

Mr.  Frame.  All  right. 

The  Chairman.  Was  there  any  distrust  in  Xew  England  of  their 
currenc}'  ? 

^Ir.  Frame.  Yes,  sir. 

The  Chairman.  There  was? 

Mr.  Frame.  Yes,  sir. 

The  Chairman.  Wliy  did  they  pay  for  it,  all  through  those  years 
from  1820  to  1860,  a  premium  of  1  to  5  per  cent  in  all  the  western 
cities  ? 

Mr.  Frame.  Shall  I  quote  to  you  what  John  J.  Knox  says  on  that 
point?  I  will  not  give  you  my  authority;  I  will  give  you  John  J. 
Knox. 

The  Chairman.  Do  they  distrust  the  currency  up  in  Canada? 

Mr.  Frame.  That  is  an  entirely  different  proposition,  too. 

The  Chairman.  Different  from  what  it  would  be  in  the  case  of 
national  banks? 

Mr.  Frame.  Yes,  sir. 

The  Chairman.  Why  would  it  be  different? 

Mr.  Gillespie.  That  is  asset  currency,  is  it  not? 

Mr.  Frame.  Those  are  great,  big,  centralized  institutions,  and  they 
have  a  first  lien  on  the  assets  and  a  5  per  cent  guaranty  fund.  No 
small  institution  is  allowed  to  issue  currency. 

The  Chairman.  It  is  all  on  credit,  is  it  not — a  pure  credit  note  ? 

Mr.  Frame.  Yes,  sir. 

The  Chairman.  Speaking  of  their  distrusting  this  kind  of  currency 
up  there,  I  will  say  that  Mr.  McMorran  lives  on  the  border  up  there, 
and  he  says  that  Americans  run  over  from  our  banks  and  hide  their 
money  over  in  Canada. 

Mr.  Powers.  But  no  bank  of  less  than  $500,000  capital  is  allowed  to 
issue  currency. 

The  Chairman.  And  it  must  have  S250,000  paid  in? 

Mr.  Powers.  Yes. 

The  Chairman.  If  there  is  nothing  further 

Mr.  Burton.  Mr.  Frame  was  asked  a  question,  and  I  think  he 
should  be  allowed  to  answer  it. 

Mr.  Crawford.  He  is  entitled  to  answer  even  if  he  does  not  support 
our  bill. 

Mr.  Frame.  In  the  History  of  Banking  in  all  Nations,  page  337, 
under  "Free  and  safety  fund  banking  in  New  York  State,"  it  is  said 
that  "  the  notes  of  twenty-five  of  them  were  rejected,  and  all  the  safety 
fund  and  free  bank  notes  w^ere  at  a  discount."  That  is  a  quotation. 
Again,  "In  December.  1840.  it  w^as  reported  that  few  brokers  would 


CURRENCY  LEGISLATION.  253 

buy  the  notes  of  any  free  banking  association,"  and  "the  notes  of 
many  of  the  safety  fund  banks  of  the  interior  are  regarded  with  great 
distrust." 

The  same  authorit}'  sa3''s,  in  referring  to  all  banks  of  issue  from 
1739  to  1841,  that  "the  estimated  losses  on  their  circulation  were 
18.1  miUions  of  dollars."  John  J.  Knox,  in  his  history,  says  that 
from  1789  to  1864  "the  probable  losses  to  note  holders  were  about  5 
per  cent  per  annum."  Further,  "the  circulating  notes  of  State 
banks  were  subject  to  violent  expansion  in  times  of  confidence  and 
sudden  contraction  when  distrust  occurred.  The  runs  on  the  banks 
were  not  made  by  depositors  (for  they  were  few),  but  by  note  holders." 

Here  is  proof,  not  theory,  that  ought  to  compel  every  patriotic 
citizen  to  stand  for  a  secured  currency  to  prevent  distrust,  that  our 
troubles  may  not  be  doubled,  as  they  would  be  under  asset  or  credit 
currency. 

The  Chairman.  Hold  on— that  does  not  apply  to  New  England, 
does  it'^  You  said  you  were  going  to  tell  me  what  Knox  said  about 
New  England. 

Mr.  Frame.  Does  he  not  refer  to  New  England  here? 

The  Chairman.  I  do  not  so  understand. 

Mr.  F^rame.  He  speaks  of  the  Suffolk  system.  [After  an  exami- 
nation of  memoranda:]  No;   I  beg  your  pardon. 

The  Chairman.  I  tliink  so. 

Mr.  Frame.  But  so  far  as  the  Suffolk  system  is  concerned,  the  loss 
under  the  Suff'olk  system  to  the  note  holders  was  $877,000. 

The  Chairman.  Yes;    I  am  glad  you  mentioned  that  fact. 

Air.  Frame.  Yes,  sir. 

The  Chairman.  Exactly;  and  it  would  have  taken  only  forty 
years  for  a  tax  of  one-eighth  of  1  per  cent  on  the  note  issues  to  have 
paid  it;  and  it  would  have  taken  since  the  national  banking  system 
was  adopted  one-fifth  of  1  per  cent  upon  all  the  notes  to  guarantee 
them,  showing  that  the  New  England  system  was  just  that  much 
safer  than  the  national  bank  system. 

Mr.  Frame.  And  in  more  or  less  of  the  States  of  New  England  the 
unlimited  liabilitv  act  applied  as  against  both  the  deposits  and  notes. 

The  Chairman.  AMiat  States? 

Mr.  Frame.  I  think  Rhode  Island  has  an  unlimited  liability  act. 

The  Chairman.  Was  there  ever  a  suit  brought  in  any  one  of  those 
New  England  States  to  recover  on  that  proposition? 

Mr.  Frame.  I  do  not  know  that  I  have  looked  that  up  carefully. 

The  Chairman.  I  do  not  think  there  is  any  such  law.  I  do  not 
know  anything  about  it;  I  never  saw  it,  but  do  you  know  it? 

Mr.  Frame.  How  is  that? 

The  Chairman.  Do  you  know  that  there  was  an}'  unlimited  liabil- 
ity law  in  any  one  of  those  States? 

Mr.  Frame.  I  think  I  could  quote  it  if  I  had  time. 

The  Chairman.  I  never  saw  it. 

Mr.  Frame.  I  have  looked  it  up,  and  I  think  you  will  hnd  it  either 
in  the  Monetary  Commission  Report  or  in  the  Sound  Currency  Red 
Book.     I  think  you  will  find  it  in  both  of  them. 

The  point  with  me  is  that  if  I  am  loaning  money  I  would  feel  just 
like  the  other  85,000,000  of  our  people:  You  put  up  good  collateral 
and  I  will  go  home  and  go  to  sleep  at  night  and  will  not  bother 


254  CUERENCY  LEGISLATION. 


Clf'-'" 


,1^^ 


myself  a  minute  about  it;    and  for  the  last  forty  years|no  onej^h 
ever  lost  a  night's  sleep  on  that  account.     It  would  be  the  same  tlih  ^ 
with  any  kind  of  currency  that  is  outstanding  that  has  undoubt< 
collateral  behind  it.     Asset  currency  will  not  do  it.  j]^ , 

The  Chairman.  Is  there  any  other  country  in  the  world  that  h 
such  a  system  as  ours? 

Mr.  Frame.  Asset  currency  will  not  bring  that  about  in  the  c 
of  a  lot  of  small,  independent  bankers. 

The  Chairman.  Is  there  any  country  in  the  world  that  has  cu 
rency  like  our  own  ? 

Mr.  Frame.  No,  sir. 

The  Chairman.  It  has  never  been  valueless,  and  yet  at  one  tim  ii^ 
it  was  worth  35  cents  on  the  dollar.     That  is  true,  is  it  not?  p 

Mr.  Frame.  What,  the  currency?  ligl 

The  Chairman.  Yes;   our  currency 

^Ir.  Frame.  I  have  paid  currency  over  my  counter 


ilr. 

:01l!'i 


ill. 


]\ 

ill' 
mo; 
TO': 


The  Chairman.  But  our  currency  was  worth  35  cents  on  the  dolla 
in  gold,  was  it  not? 

Mr.  Frame.  In  gold — that  is,  in  currency,  but  not  in  gold. 

The  Chairman.  Yes. 

Mr.  Frame.  In  gold,  it  was;  yes,  sir. 

The  Chairman.  Well,  does  that  make  any  difference?  Jiutt 

Mr.  McKiNNEY.  That  was  not  the  fault  of  the  system? 

Mr.  Frame.' No,  sir;  it  was  because  we  had  suspended  specie^ 
payment. 

Mr.  Crawford.  When  was  that? 

Mr.  Frame.  During  the  war;  immediately  after  the  war  the  value 
of  gold  got  to  be  280.  ' 

Mr.  Craw^ford.  And  that  was  not  receivable  for  imports  duties, 
either. 

Mr.  Frame.  The  gold  was  not  receivable? 

Mr.  Crawford.  I  mean  the  currency  was  not  receivable.  You 
could  not  pay  the  tariff  duties  with  it. 

IMr.  Frame.  That  was  because  the  stress  of  the  Government  was 
such  that  they  wanted  two  and  a  half  for  one  to  pay  the  expenses  of 
the  Government. 

Mr.  Crawford.  I  mean  when  it  was  made  receivable  for  tarifif 
duties  it  went  to  par. 

Mr.  Frame.  Well,  the  Government  wanted  revenue.  I  can  explain 
how  that  occurred. 

Mr.  DiCKERMAN.  The  real  reason  for  that  was  that  they  were  afraid 
the  war  would  not  be  successful  and  the  money  could  not  be  re- 
deemed. 

Mr.  Frame.  The  Government  needed  it. 

Mr.  Gillespie.  It  was  after  the  war  that  it  was  do^^^l  so  low. 

Mr.  Frame.  They  had  some  fear  that  they  could  not  redeem  it, 
however. 

Mr.  Burton.  That  was  when  the  currency  value  was  so  low. 

Mr.  Gillespie.  Yes;  just  after  the  war. 

Mr.  Burton.  That  was  about  1864. 

Mr.  Powers.  No;  I  think  it  was  before  the  end  of  the  war,  before 
it  closed.     It  went  down  40  or  50  per  cent  after  the  war  closed. 

Mr.  Burton.  It  fell  off  ver}^  much  at  the  close  of  the  war.'^  I  do 
not  think  it  fluctuated  above   140  at  any  time.     Very^soon  after 


^eu 


I  CUllRENCY    LEGISLATION.  255 

'■((|ii  dietary  Chase's  resignation,  on  June  30,  1864,  it  went  up  to  a  very 
''lii  ;h  figure;  and  then  again  in  July  of  the  same  year  it  reached 
'^^te  other  niaximum. 
^ ,  Mr.  Frame.  Two  hundred  and  eighty,  I  think,  was  the  highest — 

out  281. 

Mr.  McCreary.  Mr.  Frame,  you  spoke  about  the  value  of  collat- 
Is,  and  so  on,  on  loans.     What  was  the  trouble  with  the  collaterals 

.e  recently  that  the  Knickerbocker  Trust  Company  and  some  of 

ese  other  companies  had? 

Mr.  Frame.  I  think  probably  the  gentleman  at  my  right  has  sug- 

sted  about  the  line  of  stuff  they  had  there.     That  was  exactly  what 

as  the  matter  with  them.     If  they  had  taken  the  right  kind  of 

tllateral  it  would  have  been  all  right.     That  is  why  I  believe  in  a 

gh-class  collateral. 

Mr.  McCreary.  But  there  were  lots  of  high-class  collaterals  that 
ley  could  not  take  and  realize  on  during  their  troubles. 
aij  Mr.  Frame.  You  could  if  you  had  the  right  kind  of  collateral;  you 
3uld  do  it  under  the  Aldrich  bill. 

Mr.  Gillespie.  Of  course  if  the  Government  would  just  take  them 
tt  a  certain  price  you  could  always  realize  on  them. 

Mr.  Frame.  You  do  not  have  to  realize  on  the  bonds.  You  simply 
ut  the  bonds  up  as  collateral  security  and  get  your  notes. 

Mr.  Gillespie.  Yes;  and  the  Government  v/ill  give  you  a  fixed 
.mount  for  the  bonds. 

Mr.  Frame.  No;  there  is  no  sale  of  them.  It  is  merely  put  up  as 
'collateral  security;  that  is  all.  You  are  practically  borrowing  the 
noney.  That  is  all  there  is  to  it;  and  when  you  get  thi'ough  with  it 
y^ou  pay  it  back  again. 

Mr.  Crawford.  You  do  not  mean  to  say  that  the  failure  of  the 
IKnickerbocker  Trust  Company  brought  about  this  panic,  do  you? 

Mr.  Frame.  I  think  the  boil  broke,  and  it  did  produce  a  panic  in 
the  sense  of  bringing  it  about  at  that  particular  time.  We  might 
have  run  along  for  some  little  period  of  time  without  it. 

Ml'.  Crawford.  The  conditions  were  here,  though,  were  they  not? 

Mr.  Frame.  The  conditions  had  gradually  accumulated. 

Mr.  Crawford.  According  to  your  former  statement,  it  was  infla- 
tion of  credit  that  produced  it. 

Mr.  Frame.  Yes,  sii-.  It  had  been  gradually  accumulating  with 
the  vast  expansion  of  credit  all  over  the  country  and  all  over  the 
world. 

Mr.  Gillespie.  Do  you  favor  the  removing  of  the  nine  million  lim- 
itation on  retii'ement  ? 

Mr.  Frame.  I  think  that  question  was  tht-ashed  out  pretty  thor- 
oughly about  1882  in  Congress,  here;  and  as  far  as  that  retii-ement 
feature  is  concerned  I  \\ould  leave  that  open.  There  were  some 
reasons  at  that  time  which  would  probably  not  prevail  to-day  as  a 
reason  why  they  limited  it. 

Mr.  Gillespie.  You  mean  you  would  revoke  the  limitation? 

Mr.  Frame.  I  would  revoke  the  limitation;  I  do  not  think  it  would 
make  any  material  difference.  In  fact,  I  understand  it  has  not  made 
any  difference  since  it  was  raised  from  three  million  to  nine  million 
per  month.  It  has  made  no  material  difference  as  far  as  retirements 
were  concerned. 


256  CURRENCY   LEGISLATION. 

The  Chairman.  Of  course  the  retirements  bear  no  relation  at  all 
to  the  currency  conditions.  It  is  purely  a  matter  of  bond  specula- 
tion. 

Mr.  Frame.  I  agree  with  you,  sir. 

The  Chairman.  That  is  a  fine  system  of  currency  to  have — one 
that  relates  entirely  to  the  bonds  and  not  to  the  commerce  of  the 
United  States. 

Mr.  Frame.  I  want  to  say  right  here,  gentlemen,  that  as  far  as  I 
am  concerned,  although  I  have  been  in  the  national  banking  business 
for  forty-two  years,  if  by  an  evolutionarj^  process,  so  as  not  to  produce 
any  shock  to  the  country,  every  national  bank  in  the  United  States 
should  be  deprived  of  the  privilege  of  issuing  currency,  and  it  was 
all  done  b}'  one  central  institution,  just  as  they  do  in  Europe,  with- 
out the  branch  banking  feature,  I  would  be  perfectly  willing  to  dis- 
continue our  present  circulation  in  the  course  of  time,  and  I  believe 
it  would  be  a  good  thing  for  the  country,  and  that  it  would  entirely 
eliminate  the  objection  that  was  raised  by  the  chairman. 

Mr.  Gillespie.  'Then  that  would  be  an  asset  currency? 

Mr.  Frame.  No,  sir;  not  in  the  sense  in  which  you  would  call  it  an 
asset  currenc}";  not  the  way  I  look  at  it. 

Mr.   Gillespie.  What  sort  of  currencv  would  the  central  bank 


issue 


Mr.  Frame.  So  far  as  the  banks  of  Europe  are  concerned  that  do 
issue  currency,  they  are  practically  all  issuing  what  might  be  termed 
gold  certificates  payable  on  demand;  and  the  uncovered  currency 
in  any  bank  in  Europe  that  is  an  issuing  bank  is  very,  very  small 
in  comparison  to  the  total  of  uncovered  currency  in  the  United 
States.     However,  I  think  I  will  not  go  into  that  matter. 

Mr.  Powers.  Mr.  Chairman,  I  move  a  vote  of  thanks  to  Mr. 
Frame  for  liis  appearance. 

(The  motion  was  unanimously  carried.) 

Mr.  Frame.  I  thank  you,  gentlemen,  for  your  kindness.  There 
is  only  one  point  that  I  world  like  to  add  to  that,  if  you  are  putting 
it  in  the  record. 

The  Chairman.  You  will  have  these  minutes  to  elaborate  just  as 
you  please. 

Mr.  Frame.  There  is  just  one  expression  here  that  the  stenog- 
rapher can  insert.  I  would  just  like  to  have  Mm  put  it  down,  and 
then  it  will  go  into  the  record.  The  average  coin  held  against  the 
total  liabilities  of  the  twenty  great  centralized  banks  of  Europe, 
which  have  a  practical  m'onopoly  of  all  the  currency  in  Europe,  is 
54  per  cent. 

The  Chairman.  That  includes  the  silver,  does  it  not? 

Mr.  Frame.  That  includes  the  silver. 

The  Chairman.  And  the  silver  has  to  be  maintained  on  a  parity 
with  the  gold ;  and  therefore  it  is  just  as  much  of  a  burden  as  a  credit 
currency  would  be? 

Mr.  Frame.  Just  the  same  as  the  silver  in  the  United  States. 

The  Chairman.  Yes.     It  is  a  load  on  the  gold. 

Mr.  Frame.  That  is  54  per  cent,  as  against  7  per  cent  of  coin  held 
by  the  national  })anks  of  the  United  States. 

Tlie  Chairman.  Is  it  not  true  that  all  these  central  banks  main- 
tain all  of  the  commercial  credits  of  each  country  where  they  are 
located,  besides  maintaining  their  own  credits? 


CURRENCY  LEGISLATION.  257 

Mr.  Frame.  To  a  certain  extent  tlie}^  are  a  balance  wheel. 

The  Chairman.  They  are  the  "whole  thing." 

Mr.  Gillespie.  And  this  coin  supports  not  only  the  notes,  but  the 
deposits;  it  is  the  reserve  for  the  whole  thing.  That  is  the  total 
amount  of  gold  and  silver  they  hold  ? 

Mr.  Frame.  Yes,  sir. 

Mr.  Gillespie.  The  54  per  cent? 

Mr,  Frame.  The  54  per  cent. 

Mr.  Gillespie,  That  is  the  reserve  not  only  for  the  notes  out- 
standing, but  for  the  deposits  as  well. 

The  Chairman,  And  for  all  the  banks  in  the  countr}",  wherever 
they  are  located. 

Mr.  Frame.  As  far  as  the  deposits  are  concerned,  they  are  a  small 
moiet}"  of  the  circulation  outstanding.  The  circulation  of  these 
twenty  banks  is  $3,500,000,000.  The  deposits  of  these  banl<;s  are 
onty  $1,100,000,000,  It  is  just  the  reverse  as  far  as  the  national 
banks  are  concerned. 

The  Chairman,  What  is  the  relation  of  the  gold  in  Great  Britain 
to  the  commercial  credits  of  Great  Britain  ? 

Mr,  Frame.  It  is  very,  very  small,  because  they  have  this  great 
centralized  institution  as  a  balance  wheel. 

The  Chairman.  How  much  is  it  ? 

Mr.  Frame.  It  is  ver\^  small. 

The  Chairman.  Is  it  7  per  cent? 

Mr.  Frajsie.  I  do  not  think  any  man  can  tell. 

The  Chairman.  Oh,  yes;  we  Itnow, 

Mr,  Frame.  The  total  credit? 

The  Chairman.  Yes.  What  relation  to  the  total  credits  of  Great 
Britain  does  the  gold  in  the  Bank  of  England  bear  to  all  the  commer- 
cial credits  of  Great  Britain? 

Mr.  Frame.  I  tliink  that  is  mere  speculation;  I  do  not  think  any 
man  can  tell  exactly. 

Mr.  Gillespie.  I  want  to  call  your  attention  to  this  right  here: 
Here  is  a  statement  of  the  condition  of  the  banks  in  the  United 
Kingdom,  including  colonial  and  foreign  joint  stock  banks  with 
London  offices,  and  including  also  Canada  and  also  Australasia. 
Their  circulation  is  $416,000,000.  Now,  their  deposits  are  $9,016,- 
000,000. 

Mr.  Frame.  Yes,  sir. 

!Mr,  Gillespie,  So  certainly  their  deposits  far  outweigh  their 
notes. 

Mr.  Frame.  I  am  not  referring  to  the  banks  of  deposit,  I  was 
referring  to  the  banks  of  issue.  The  banks  of  deposit  also  hold  re- 
serves. But,  as  I  understand  from  my  last  investigation,  the  banks 
in  Great  Britain,  not  including  the  Bank  of  England,  held  only  about 
4  per  cent  of  coin  on  hand  as  against  their  total  liabilities,  whereas  ours 
is  7  per  cent.  But  the  Bank  of  England  is  the  balance  wheel  wliich 
takes  care  of  them  when  they  get  into  trouble,  the  same  as  it  did  in 
1890,  during  the  Baring  troubles.  They  liquidated  that  great  insti- 
tution, with  $105,000,000  of  liabilities,  and  they  did  not  suspend 
cash  payment,  as  we  did  last  fall. 

Mr.  McCreary.  Mr,  Frame,  speaking  of  the  Bank  of  England, 
"the  Bank  of  England  is  a  private  corporation,  in  the  management  of 
which  the  British  Government  has  no  voice.     The  shareholders  elect 

37381—08 17* 


258  CURRENCY   LEGISLATION. 

twenty-four  directors,  none  of  them  in  the  bankmg  business.  They 
select  a  governor  and  deputy  governor  for  two-year  terms.  The  bank 
has  eleven  branches.  There  is  no  prescribed  reserve,  but  the  practice 
is  to  keep  between  45  and  55  per  cent.  This  seems  large,  but  inas- 
much as  the  Bank  of  England  carries  the  reserve  virtually  for  the  bank- 
ing system  of  the  entire  coimtry,  it  is  not." 

Mr.  Frame.  The  other  banks  have  on  hand  about  4  per  cent  of  coin. 

The  Chairman.  If  there  is  nothing  further,  gentlemen,  the  com- 
mittee will  take  a  recess  until  this  afternoon. 

Mr.  Frame.  I  want  to  thank  you  very  much,  Mr.  Chairman  and 
gentlemen,  for  your  kindness. 

(The  committee  thereupon  took  a  recess  until  2.30  p.  m.,  at  which 
time  it  was  annoimced  that  the  consideration  of  the  Fowler  bill,  by 
sections,  would  be  resumed.) 


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